2016 Nobel Prize: Contract theory rewarded (Hart, Holmström)
Oliver Hart (Harvard University) and Bengt Holmström (MIT) were awarded the 2016 Nobel Prize in Economics for their work in contract theory.
Modern economies are held together by countless contracts. The new theoretical tools created by Hart and Holmström are invaluable for understanding these contracts and institutions, as well as the potential pitfalls in contract design. The many contractual relationships in society include those between shareholders and senior executives of a company, between an insurance company and car owners, and between a public authority and its suppliers. Given that such relationships generally involve conflicts of interest, contracts must be properly designed to ensure that the parties make mutually beneficial decisions.
