Oliver Hart of Harvard University and Bengt Holmstrom of the Massachusetts Institute of Technology have been awarded the 2016 Nobel Prize in Economic Sciences.
The announcement Monday by the Royal Swedish Academy of Sciences said their work in contract theory is "valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.''
Finnish Professor Bengt Holmstrom of the Massachusetts Institute of Technology smiles as he departs a news conference after speaking to members of the media, Oct. 10, 2016, on the campus of MIT in Cambridge, Mass.
"This year's laureates have developed contract theory, a comprehensive framework for analyzing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatization of public-sector activities," the jury said.
The committee added that they analytical work establishes an “intellectual foundation" to grasp every day contracts in areas like bankruptcy legislation to political constitutions.
"The new theoretical tools created by Hart and Holmstrom are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design," it said.
The two will split the $924,000 prize. The laureates are set to officially receive the award on Dec. 10, the anniversary of prize founder Alfred Nobel's death in 1896.
Last week, the committee also announced the Nobel prizes in medicine, physics, chemistry and the peace prize.
The final prize, for literature, will be announced Thursday.