Noble Prize: Economists win Nobel for contract theory

Oliver Hart and Bengt Holmstrom will share the 8 million Swedish krona (£744,652) prize (JONATHAN NACKSTRAND)

UK-born Oliver Hart and Bengt Holmstrom of Finland have won the Nobel Economics Prize for work on contract theory. 

Judges said their work laid "an intellectual foundation" for strategies in ranges, for example, liquidation enactment and political constitutions. 

The match will get 8 million Swedish krona (£744,652) from the committee. 

Mr Hart, who was woken with the news at 4.40am, said his first response had been to embrace his wife and wake his younger son.

Mr Holmstrom said he felt "very lucky" and "grateful". 

The Royal Swedish Academy of Sciences said that Mr Hart and Mr Holmstrom's work was "valuable to the understanding of real-life contracts and institutions".

It also said it could identify "potential pitfalls in contract design."

Working independently, the two made instruments to figure out if public sector workers ought to receive fixed salaries or performance-based pay, and whether providers of public services should be publicly or privately owned.

Mr Holmstrom specifically is known for his exploration into how contracts and incentives influence corporate conduct. 

The former Nokia board member declined to say whether he thought official pay was too high nowadays, yet remarked: "My personal view is that [top executives' contracts] are too complicated today."

Focused Field 

Mr Holmstrom, aged 67, is a professor of economics and management at Massachusetts Institute of Technology, while Mr Hart, born in 1948, is an economics professor at Harvard University in the US.

The pair saw off rivalry from the World Bank's new chief economist Paul Romer, who was widely tipped to win.

New York University's Stern Business college, where Prof Romer teaches, started debate last Thursday when it accidently distributed a public statement naming him as the winner.

In the 1970s, Bengt Holmstrom showed how contracts could effectively link managers' pay to their performance (JUSSI NUKARI)

It rapidly brought down the release, saying it was planning for a conceivable win. 

Others accepted to be the running included Olivier Blanchard, a former chief economist at the International Monetary Fund, and Edward Lazear, a fellow at the Hoover Institution, Stanford University. 

American's Overwhelm 

The economics prize is the main Nobel not made by Alfred Nobel, and was rather launched in 1968, long after the philanthropist's death.

To date Americans have dominated the award, with 55 of the 76 laureates holding US citizenship, incorporating those with double nationalities. 

A year ago Scottish-born business economist Angus Deaton won the prize for his his use of data to investigate income inequality and inform economic policy. 

It is the fifth Nobel to be declared this year, after prizes for physiology or pharmaceutical, material science, science and peace were awarded a week ago. 

The Nobel prize for writing will be awarded on Thursday.