Two Europeans Win 2016 Economics Nobel for Contract Theory

The Nobel Memorial Prize in Economic Sciences in 2016 has been awarded jointly to a British-born American economist Oliver Hart, Andrew E. Furer Professor of Economics at Harvard University and a Finnish national  Bengt R.Holmström, who is currently the Paul A. Samuelson Professor of Economics at the Massachusetts Institute of Technology for their discoveries in Contract Theory. Both will jointly share the 8m Kroner prize money. “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.” Said the Nobel committee in its press release. 

Holstrom's multi-tasking model shows that if the manager's performance pay emphasizes short-term cash-flow, his actions may neglect the company's long-term health. Courtesy: ©Johan Jarnestad/The Royal Swedish Academy of Sciences