Economists win Nobel Prize for contract theory

        Bengt Holmstrom                                                   Oliver Hart

 

UK-born Oliver Hart and Bengt Holmstrom of Finland have won the Nobel Economics Prize for work on contract theory.

Judges said their work laid "an intellectual foundation" for policies in areas such as bankruptcy legislation and political constitutions.

The pair will receive 8 million Swedish kroner (£744,652) from the committee.

It comes after Nobel prizes for physiology or medicine, physics, chemistry and peace were awarded last week.

The Royal Swedish Academy of Sciences said that Mr Hart and Mr Holmstrom's work was "valuable to the understanding of real-life contracts and institutions".

It also said it could identify "potential pitfalls in contract design."

For example, contract theory can be used to assess performance-based pay for top executives, the academy said.

Mr Hart, born in 1948, is an economics professor at Harvard University in the US, while Mr Holmstrom is a professor of economics and management at Massachusetts Institute of Technology.

The pair saw off competition from the World Bank's new chief economist Paul Romer, who was tipped to win.