Oliver Hart and Bengt Holmstrom were awarded the Nobel Memorial Prize in Economic Science on Monday for their insights into how best to write contracts, the deals that bind together employers and their workers, or companies and their customers.
Dr. Hart, a professor at Harvard, and Dr. Holmstrom, a professor at the Massachusetts Institute of Technology, have sought to determine how contracts can encourage mutually beneficial behavior.
In the 1970s, Dr. Hart developed rules for executive pay, showing how the owners of companies should reward the people paid to lead those businesses. He demonstrated, for example, that pay should be tied to long-term performance through mechanisms such as rewarding executives gradually.
Another crucial issue: Contracts are rarely complete. Parties must often address questions that are not explicitly anticipated when a document is drawn up. Dr. Hart’s research in the 1980s focused on what kind of rules can be included to encourage mutually beneficial decision-making.
“His research provides us with theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and which institutions such as schools or prisons ought to be privately or publicly owned,” the Royal Swedish Academy of Sciences, which awarded the prize, said in a news release.
The two winners spoke via an audio connection to a news conference hosted by the academy. Dr. Holt said he was “very surprised and very happy” to get the news. Asked how his day was going, Dr. Holmstrom said there was “a sense of things being surreal.”
Dr. Hart said that he hugged his wife, woke his son and then spoke by phone with Dr. Holmstrom, whom he has known for years. Both scholars teach in Cambridge, Mass.
“I woke at about 4:40 and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang,” Dr. Hart said.
Who Are the Winners?
Professor Hart, 68, was born in London. He studied at University College London, Cambridge University and Warwick University, all in England, before receiving his Ph.D. in 1974 from Princeton. He has been a professor of economics at Harvard since 1993.
Professor Holmstrom, 67, was born in Helsinki, Finland. He received his Ph.D. in 1978 from Stanford and has been a professor of economics and management at M.I.T. since 1994. He previously taught at Northwestern and Yale.
Who else has won a Nobel this year?
■ Yoshinori Ohsumi, a Japanese cell biologist, was awarded the Nobel Prize in Physiology or Medicine on Monday for his discoveries on how cells recycle their content, a process known as autophagy, a Greek term for “self-eating.”
■ David J. Thouless, F. Duncan M. Haldane and J. Michael Kosterlitz shared the Nobel Prize in Physics on Tuesday for their research into the bizarre properties of matter in extreme states.
■ Jean-Pierre Sauvage, J. Fraser Stoddart and Bernard L. Feringa shared the Nobel Prize in Chemistry on Wednesday for development of molecular machines, the world’s smallest mechanical devices.
■ President Juan Manuel Santos of Colombia was awarded the Nobel Peace Prize on Friday for pursuing a deal to end 52 years of conflict with the Revolutionary Armed Forces of Colombia, or FARC, the longest-running war in the Americas.
Who won the 2015 Nobel Memorial Prize in Economic Science?
Angus Deaton was awarded last year’s prize for improving the data that shape public policy, including measures of wealth and poverty, savings and consumption, health and happiness.
When will other prizes be announced?
The Nobel Prize in Literature will be announced on Thursday in Sweden. Read about last year’s winner, Svetlana Alexievich.