This article is from the source 'independent' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.independent.co.uk/news/business/news/nobel-prize-for-economics-awarded-to-oliver-hart-and-bengt-holmstrom-a7353731.html

The article has changed 6 times. There is an RSS feed of changes available.

Version 1 Version 2
Nobel Prize for economics awarded to Oliver Hart and Bengt Holmstrom Nobel Prize for economics awarded to Oliver Hart and Bengt Holmstrom
(35 minutes later)
The Nobel Prize for Economics has been won by a Briton and a Finnish-American for their pioneering work on contract theory. The Nobel Prize for Economics has been won by a British-American and a Finn for their pioneering work on contract theory.
Oliver Hart and Bengt Homstrom were named by the Royal Swedish Academy of Sciences in Stocholm today. Oliver Hart and Bengt Homstrom were named by the Royal Swedish Academy of Sciences in Stockholm today.
Holt, 68, is Professor of Economics at Harvard University and Holmstrong, 67, is Professor of Economics at the Massachusetts Institute of Technology. Mr Hart, 68, is Professor of Economics at Harvard University and Mr Holmstrong, 67, is Professor of Economics at the Massachusetts Institute of Technology.
The pair will share the 8m Swedish krona (£747,000) prize between them.The pair will share the 8m Swedish krona (£747,000) prize between them.
Through their initial contributions, Hart and Holmström launched contract theory as a fertile field of basic research. Over the last few 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 Academy said. "Through their initial contributions, Hart and Holmström launched contract theory as a fertile field of basic research. Over the last few 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 Academy said.
Last year's winner of the prize was Angua Deaton, like Mr Holt, another British economist who works in the US. Contract theory concerns the wat economic actors construct contractural arrangments, usually working with imperfect information.
In response to the news Mr Hart said: "I woke at 4.40am and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang". Last year's winner of the Nobel economic prize was Angua Deaton, like Mr Hart, another British-born economist who now works in the US.
"Contracts are just an incredibly powerful way of thinking about parts of economics. They’re just fundamental to the whole idea that trade is a quid pro quo and that there are two sides to a transaction”. Mr Hart moved to the US in 1984.
More follows Mr Holmstrom has been on the faculty of MIT since 1994.
In response to the news Mr Hart today said: "I woke at 4.40am and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang".
Talking about his work he said: "Contracts are just an incredibly powerful way of thinking about parts of economics. They’re just fundamental to the whole idea that trade is a quid pro quo and that there are two sides to a transaction”.
In a 1979 paper Mr Holmstrom suggested that in an optimal contract a chief executives' pay should be benchmarked to their firm's performance relative to peer companies because simply linking compensation to the firm’s share price will reward the manager for good luck and punish them for bad luck.
Such benchmarking is now standard in the remuneration contracts of executives of listed companies.
However, Mr Holmstrom in that paper also suggested that in high-risk industries where the manager's performance was harder to measure pay should be skewed to fixed salaries.