Academicians Bengt Holmstrom and Oliver Hart have been awarded with 2016 Nobel Memorial Prize in Economics Science for their work in improvement in contracts designing.Harvard professor Hart and Massachusetts Institute of Technology professor Holmstrom share the $925,000 award from the Swedish Riksbank in memory of Alfred Nobel, for their contribution to contract theory in the 1970s and 1980s.
The duo focused on developing mutually beneficial behavior through contracts in varied areas such as car insurance, public services amongst others.
“Hart’s research provides us with theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and which institutions such as schools or prisons ought to be privately or publicly owned,” the Royal Swedish Academy of Sciences, which awarded the prize, said in a news release.
While Holmstrom said that he was surprised and happy to get the news, Hart, on the other hand, couldn’t contain his excitement and woke up his son from sleep.
“I woke at about 4:40 and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang. i hugged my wife, woke uop my son from his sleep and then spoke to Dr Holmstrom” Hart said.
Holmstrom’s work present evidence that companies should tie pay to the broadest possible evaluation of an employee’s performance. And Hart work emphasis on decision making power to given to the parties whose performance is most difficult for the owners to assess and reward.