October 10, 2016

Finnish professor wins a Nobel prize

The prize in Economic Sciences in Memory of Alfred Nobel was announced on Monday.
The prize in Economic Sciences in Memory of Alfred Nobel was announced on Monday.
NobelPrize.org/Screenshot

Bengt Holmström has been awarded a Nobel in economic sciences together with UK-born Oliver Hart for their contributions to contract theory.

According to the jury, “the new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design”.

The prize is eight million Swedish krona (approximately 830 000 euros) to be shared evenly between the laureates.

Designing contracts properly is essential for ensuring different contractual parties with conflicting interests make mutually beneficial decisions. Holmström and Hart have developed contracts theory, which is a framework for the analysis of diverse issues in contractual design, such as performance-based pay for top executives and the privatisation of public-sector activities.

Holmström is a professor of economics and management at Massachusetts Institute of Technology, and Hart works as an economics professor at Harvard University.

Through the initial contributions of Holmström and Hart, contract theory was launched as a fertile field of basic research. Over recent decades, they have also explored many of its applications.

“Their analysis of optimal contractual arrangements lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions,” the statement reads.

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