Organisational Structure and Environmental Liability


29 May 2020


11:00am - 12:00pm AWST


11:00am - 12:00pm AWST Webinar


Assoc Prof Ben White 



The standard economic model of a firm has little to say about how the firm is organised internally and whether this matters in terms of allocative efficiency. Specifically is a firm organised with product divisions more efficient than one with functional divisions (for instance, production, marketing and research)? Besanko et al (2005) partially answers this question using a multi-task principal-agent model and conclude that a firm with a product-based organisation is more efficient than one with a functional-based organization. This paper extends this approach to a polluting firm with production and environmental functions. It attempts to answer two questions. First should managers or the firm be liable for environmental damage? Second, which organisational type is best for the firm and society? The results show for a product-based firm it does not matter how liability is allocated by the regulator for a functional-based firm it does. The answer to the second question is more difficult to resolve – it depends on the profit and damage function. The significance of this analysis is that for industries such as mining and vehicle manufacturing (for instance, Volkswagen’s emission scandal) the way firms organise has implications for social welfare and environmental performance.


Laurent Franckx Ministry of Planning, Belgium

Frans de Vries (Stirling University), UK


Associate Professor Ben White is an environmental and agricultural economist in the UWA School of Agriculture and Environment. His research interests include honey production, urban non-point source water pollution, plant biosecurity economics and environmental policy for mines. He has published two textbooks on environmental economics jointly with Nick Hanley and Jay Shogren.

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