A Note on Organizational Design and the Optimal Allocation of Environmental Liability
AbstractA multi task principal-agent model is employed to derive optimal environmental liability rules for risk neutral managers under two alternative organizational structures - a functional organization and a product-based organization. For a product-based organization it is shown that efficiency is independent of whether the firm or managers are liable for environmental damages. In a functional organization it is optimal either to hold the firm liable for environmental damages or, equivalently, not to hold the production managers liable for environmental damages. We derive conditions to obtain the first-best solution for a given organizational structure. Finally, the organizational form that induces the highest environmental effort induces the lowest production effort and vice versa. This suggests that production and environmental protection are substitutes rather than c omplements.
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Bibliographic InfoPaper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2012-09.
Date of creation: May 2012
Date of revision:
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Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/
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organizations; principal-agent; multi-task; vicarious liability; contr acts;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-CTA-2012-10-13 (Contract Theory & Applications)
- NEP-ENV-2012-10-13 (Environmental Economics)
- NEP-HRM-2012-10-13 (Human Capital & Human Resource Management)
- NEP-RES-2012-10-13 (Resource Economics)
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