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A Multi‐Task Principal‐Agent Approach To Organizational Form

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  • DAVID BESANKO
  • PIERRE RÉGIBEAU
  • KATHARINE E. ROCKETT

Abstract

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.

Suggested Citation

  • David Besanko & Pierre Régibeau & Katharine E. Rockett, 2005. "A Multi‐Task Principal‐Agent Approach To Organizational Form," 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
    DOI: 10.1111/j.1467-6451.2005.00265.x
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    References listed on IDEAS

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    Cited by:

    1. Bogaard, Hein & Svejnar, Jan, 2018. "Incentive pay and performance: Insider econometrics in a multi-unit firm," Labour Economics, Elsevier, vol. 54(C), pages 100-115.
    2. Arijit Mukherjee & Luis Vasconcelos, 2011. "Optimal job design in the presence of implicit contracts," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 44-69, March.
    3. de, Vries Frans & Franckx, Laurent, 2012. "A Note on Organizational Design and the Optimal Allocation of Environmental Liability," Stirling Economics Discussion Papers 2012-09, University of Stirling, Division of Economics.
    4. 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.
    5. Kerstin Puschke, 2009. "Task assignment and organizational form," Journal of Economics, Springer, vol. 96(2), pages 149-168, March.
    6. Laurent Franckx & F.P. de Vries, 2004. "Environmental Liability and Organizational Structure," Energy, Transport and Environment Working Papers Series ete0401, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    7. 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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    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • L0 - Industrial Organization - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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