Nobel Prize 2016: Nobel Prize In Economics Awarded To Oliver Hart and Bengt Holström

The second to the last Nobel Prize, this time for exemplary work in Economics has been awarded to two economists, Oliver Hart of Harvard University and Bengt Holström of the Masachusetts Institute of Technology. Their work in the area of contract theory, according to the press release of the Royal Academy of Sciences, “sheds light on how contracts help us deal with conflicting interests.” They also acknowledged that contracts are “essential to the functioning of modern societies.”

What Makes a Good Contract?

According to CNN Money, each economist had his own unique contribution. Holström, in particular, took interest in employment contracts of Chief Executive Officers and other high-level executives of companies. Right now, he commented that the salaries and bonuses CEOs receive are “extraordinarily high.” But essentially, there is a way to determine the “best contract” for executives which provides “the right balance of risk and incentives,” according to another report in The Guardian.

To Privatize or Not

Hart’s work on the other hand focused on whether institutions that provide public service like schools, hospitals or prisons, should be publicly or privately owned. According to CNN Money, his research showed a case against privatization because it tended to result in lower quality of service which outweighs whatever cost savings privatization will bring.

Both economists will share the prize money of 8 million kronor, equivalent to around US $930,000. The Economics prize was originally now part of the prizes established by Nobel, having been established in 1968 and officially called the Sveriges Riksbank Prize in Economic Sciences.

This is the fifth Nobel Prize awarded this year. According to Reuters, the sixth and final prize, the one for Literature will be announced on October 13. 

Read our stories on the prizes awarded so far: Medicine and Physics, Chemistry, and Peace. Keep visiting pilipinaspopcorn.com for updates on the next Nobel Prize winner.