British-born Oliver Hart and Bengt Holmstrom of Finland won the Nobel Memorial Prize in Economic Sciences for their contributions to contract theory, shedding light on how contracts help people deal with conflicting interests.
The Royal Swedish Academy of Sciences said their theories “are valuable to the understanding of real—life contracts and institutions, as well as potential pitfalls in contract design.”
For example, contract theory can be used to analyze performance-based pay for CEOs or deductibles and co-pays for insurance, the academy said.
The economics prize is not an original Nobel Prize. It was added to the others in 1968 by Sweden’s central bank.
The Nobel Prizes in medicine, physics, chemistry and the Nobel Peace Prize were announced last week. This year’s Nobel announcements will finish Thursday with the literature award.
Each award is worth 8 million kronor, or about $930,000. The laureates will collect them on Dec. 10, the anniversary of prize founder Alfred Nobel’s death in 1896.