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A Multi-Task Principal-Agent Approach to Organizational Form

Besanko, D and R�gibeau, P and Rockett, K (2000) A Multi-Task Principal-Agent Approach to Organizational Form. UNSPECIFIED. C.E.P.R. Discussion Papers 2443.

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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 favours 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. We also consider the effects of diseconomies of span of control and cross-functional complementarities. Diseconomies of span of control sometimes favours the product organization and sometimes favour the functional organization. Cross-functional complementaries tend to make the product organization relatively more profitable.

Item Type: Monograph (UNSPECIFIED)
Uncontrolled Keywords: Functional Organization; organizational form; Principal-Agent Models; Product Organization
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 12 Jul 2012 11:45
Last Modified: 17 Aug 2017 18:11
URI: http://repository.essex.ac.uk/id/eprint/2840

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