Nobel Laureates in Economics 2016

Oct. 12, 2016

The 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded jointly to Oliver Hart and Bengt Holmström for their contributions to contract theory.

Oliver Hart is Professor of Economics at Harvard University and Bengt Holmström is Professor of Economics at MIT. Hart and Holmström have made major contributions to understanding how contracts work. Contracts are important aspects in every society and crucial for economic activity and cooperation. Their work helps us understand and design for example insurance contracts, loan agreements and employment agreements. It can also be applied to property rights and political constitutions; the contract mechanisms define many important phenomena in society.

– Both laureates have also done important research that has had a deep impact on financial economics. Holmström has written influential articles on corporate governance, CEO compensation, and the role of liquidity and transparency in financial markets. Hart’s theories are workhorse-models in corporate finance, for explaining financial contracts, collateral use, and bankruptcy law. Both Hart and Holmström have also been very active in the debate on financial regulation in recent years, says Per Strömberg, Chairman of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel.

The two laureate’s research has given us theoretical tools to analyze and understand different types of contracts. It also helps us design better contracts that influence all aspects of society and contract theory has relevance for many fields in economics and social sciences.