UK-born Oliver Hart and Finland-born Bengt Holmstrom won the 2016 Nobel Economics Prize for “their contributions to contract theory”, the Royal Swedish Academy of Sciences said on Monday.
“(Their work) lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions,” the award-giving body said on announcing the 8 million Swedish crown ($928,000) prize.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel’s 1895 will.
Hart is the Andrew E Furer Professor of Economics at Harvard University while Holmstrom is the Paul A Samuelson Professor of Economics at Massachusetts Institute of Technology (MIT).
Hart reacted to the prize saying, “I woke at about 4:40 and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang.”
One of the goals with contract theory is to explain why contracts have various forms and designs. According to Holmström, if a manager’s performance pay emphasises short-term cash flow his actions may neglect the company’s long-term health. Hart’s work has helped understanding which companies should merge and the right mix of financing and when institutions such as such as schools should be privately or publicly owned, the academy said in a statement.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel’s 1895 will.
