The pair will share the eight million kronor (826,000 euros, $924,000) prize. Photograph: (AFP)
New contract theory created by Hart and Holmstrom is valuable to the understanding of diverse issues in contractual design
British-born economist Oliver Hart and Finland-born Bengt Holmstrom on Monday won the 2016 Nobel Economics Prize for their contributions to contract theory.
Announcing the 8 million Swedish crown, the Royal Swedish Academy of Sciences said their groundbreaking work has laid "an intellectual foundation" for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions.
"This year's laureates have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities," the jury said.
Hart is an economics professor at Harvard University while Holmstrom is a professor of economics and management at the Massachusetts Institute of Technology.
The Academy said Hart's work has helped in understanding which companies should merge and the right mix of financing and when institutions such as such as schools should be privately or publicly owned.
Holmstrom's work helped how to formulate contracts for executives, the statement added.
The Nobel prize consists of a diploma, a gold medal and cheque for eight million Swedish kronor (828,000 euros, $928,000), which the laureates will receive at a ceremony in Stockholm on December 10.
(WION with inputs from agencies)