The Nobel prize in economics 2016 has been awarded to the british-American Oliver Hart and the Finnish Bengt Holsmtröm, for their work on the “theory of agreement”.
After the French Jean Tirole in 2014, and the british-American Angus Deaton in the year 2015, two economists Oliver Hart and Bengt Holmström who have been selected to receive the “award of Bank of Sweden in economic sciences” this year, for their work on the theory of the contract. These researchers have “developed the theory of the contract, a comprehensive framework of analysis of multiple aspects of the contract such as remuneration of executives based on their performance, their franchises, or the copayeurs in the insurance sector, or the privatization of public sectors”, explained the jury.
Oliver Hart was born in 1948 in London. has dual nationality british-american. He studied mathematics at King’s College (Cambridge) and economics at the University of Warwick. Doctor of the University of Princeton, he successively held the positions of researcher at the Churchill College (Cambridge), Professor at the London School of Economics and Political Science, Massachusetts Institute of Technology, and finally, since 1993, at Harvard University. His research focuses on the theory of the firm, contract theory and corporate finance.
Bengt Holmström was born in 1949, in Helsinki, Finland. He is a professor of economics at the Massachusetts Institute of Technology (MIT) since 1994. Since 1997, he is chair of the Paul Samuelson of MIT. He is known for his work on the theory of incentives and for his work on the theory of the firm. In 2011, he published “Inside and Oustide Liquidity” with the Frenchman Jean Tirole. It is part of the Swedish minority in Finland. (See his cv and his publications)
“I am grateful to the committee,” responded Bengt Holmström, a foreign member of the royal Academy of sciences of Sweden, which awards the Nobel economics.
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the end of the Nineteenth century to the 1960s, economic theory has primarily sought to understand how the prices fixed on the markets. The “general equilibrium model” has shown its limits, particularly because it does not take into account the behaviour of buyers and sellers, or of the seekers and providers of employment, in a context where the competition is not perfect and asymmetric information. The theories of contracts and incentives attempt to fill these gaps. Hart and Holmström are cited in all the books in the field.
“modern economies are interconnected by countless contracts. The new theoretical tools that were created by Hart and Holmström provide a better understanding of contracts and institutions in real life and the potential pitfalls in the design of contracts,” commented the Academy. “The many contractual relationships of the company include those concluded between the shareholders and executives of a company, between an insurance company and the owners of the car, between a public authority and its suppliers: these relationships involve conflicts of interest, contracts must be properly designed, so that they ensure the parties to make decisions mutually beneficial”.
The price had gone last year to Angus Deaton, also British-American, which is in particular attached to demonstrate that the creation and accumulation of wealth were not necessarily hand-in-hand with improving well-being. He had succeeded to the French Jean Tirole, awarded in 2014 for his analysis of market regulation. Said Nobel prize in economics, established in 1968, is equipped with 8 million Swedish kronor (830 000 euros), the two academics will share, in equal shares.