A note on organizational structure and environmental liability

Abstract This paper employs a multi-task principal-agent model to examine how corporation’s organizational structure and liability rules for environmental damages affect the incentive schemes offered managers. We derive risk averse managers under two alternative structures: product-based organization (PBO) functional-based (FBO). For PBO, it is shown that efficiency independent of whether firm or are liable damages; in FBO optimal either hold or, equivalently, only damages. It also structures equally efficient when there no correlation between from products spillover managerial effort across functions. Numerical results further reveal beneficial spillovers functions same product favours PBO over FBO; FBO.