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This paper studies the choice of organizational forms in a multi-task principal-agent model. We compare a functional organization in which the firm is organized into functional departments such as marketing and R&D to a product-based organization in which the firm is organized into product lines. Managers' compensation can be based on noisy measures of product-line profits. Measures of a functional area's contribution to total profits are not available, however. This effect favors the product organization. However, if there are significant asymmetries between functional area contributions to organizational success and cross-product externalities within functions, organizing along functional lines may dominate the product organization. The functional organization can also dominate when a function is characterized by strong externalities while the other is not. Copyright Blackwell Publishing Ltd. 2005.

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  • David Besanko & Pierre Regibeau & Katharine E. Rockett, 2005. "A MULTI-TASK PRINCIPAL-AGENT APPROACH TO ORGANIZATIONAL FORM -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 53(4), pages 437-467, December.
  • Handle: RePEc:bla:jindec:v:53:y:2005:i:4:p:437-467

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    References listed on IDEAS

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    Cited by:

    1. Piccolo, Salvatore & Tarantino, Emanuele & Ursino, Giovanni, 2015. "The value of transparency in multidivisional firms," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 9-18.
    2. Kenneth S. Corts, 2007. "Teams versus individual accountability: solving multitask problems through job design," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 467-479, June.

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