British-born Oliver Hart and Finland’s Bengt Holmstrom won the Nobel Economics Prize on Monday for work that addresses a host of questions from how best to reward executives to whether schools and prisons should be privately owned.
Their findings on contract theory have implications in such areas as corporate governance, bankruptcy legislation and political constitutions, said the Royal Swedish Academy of Sciences, which announced the 8 million Swedish crown ($928,000) prize.
“This theory has really been incredibly important, not just for economics, but also for other social sciences,” said Per Stromberg, a member of the prize committee and professor at the Stockholm School of Economics.
Contract theory considers, for example, whether managers should get paid bonuses or stock options, or whether teachers or healthcare workers should be paid fixed rates or by performance-based criteria.
Hart is an economics professor at Harvard University while Holmstrom is a professor of economics and management at the Massachusetts Institute of Technology.
The nine academics who won Nobel prizes this year in medicine, physics, chemistry and economics included five Britons, a Frenchman, a Finn, a Dutchman and a Japanese.