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Appears in Collections:Economics Journal Articles
Peer Review Status: Refereed
Title: A note on organizational structure and environmental liability
Author(s): Franckx, Laurent
de Vries, Frans P
White, Ben
Keywords: Contracts
Environmental compliance
Environmental liability
Governance framework
Issue Date: Apr-2022
Date Deposited: 5-Aug-2021
Citation: Franckx L, de Vries FP & White B (2022) A note on organizational structure and environmental liability. Environmental Economics and Policy Studies, 24 (2), pp. 173-193.
Abstract: This paper employs a multi-task principal-agent model to examine how a corporation’s organizational structure and liability rules for environmental damages affect the incentive schemes offered to managers. We derive environmental liability rules for risk averse managers under two alternative organizational structures: a product-based organization (PBO) and functional-based organization (FBO). For a PBO, it is shown that efficiency is independent of whether the firm or managers are liable for environmental damages; in a FBO it is optimal either to hold the firm liable for environmental damages or, equivalently, to only hold the environmental managers liable for damages. It is also shown that the two organizational structures are equally efficient when there is no correlation between environmental damages from products and no spillover between managerial effort across products or functions. Numerical results further reveal that beneficial spillovers between functions for the same product favours a PBO over a FBO; beneficial spillovers across functions favours a FBO.
DOI Link: 10.1007/s10018-021-00318-6
Rights: This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit gttp://
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