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A MULTI‐TASK PRINCIPAL‐AGENT APPROACH TO ORGANIZATIONAL FORM*

David Besanko, Pierre Regibeau () and Katharine Rockett

Journal of Industrial Economics, 2005, vol. 53, issue 4, 437-467

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.

Date: 2005
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https://doi.org/10.1111/j.1467-6451.2005.00265.x

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Working Paper: A Multi-Task Principal-Agent Approach to Organizational Form (2000) Downloads
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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