UK, Finnish profs win Nobel for economics
STOCKHOLM (Reuters) – 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 for corporate governance, bankruptcy legislation and political constitutions, among other fields, said the Royal Swedish Academy of Sciences, which announced the $928,000 prize.
“This theory has really been incredibly important, not just for economics, but also for other social sciences,” said Per Stromberg, 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 economics professor at Harvard University, while Holmstrom is professor of economics and management at the Massachusetts Institute of Technology.
Hart’s work has focused in part on understanding which companies should merge and the right mix of financing, and when institutions such as schools, prisons and hospitals should be privately or publicly owned, the academy said in a statement.
Holmstrom has studied the setting of contracts for workers from teachers to corporate bosses, concluding: “In industries with high risk, payment should... be relatively more biased towards a fixed salary, while in more stable environments it should be more biased towards a performance measure,” the academy said.