Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Economists from Britain, Finland win Nobel for research on pay, rewards

Published 10/10/2016, 01:36 PM
Updated 10/10/2016, 01:36 PM
© Reuters. Finland-born Bengt Holmstrom, winner of the 2016 Nobel Prize for Economics, speaks to the media in Cambridge

© Reuters. Finland-born Bengt Holmstrom, winner of the 2016 Nobel Prize for Economics, speaks to the media in Cambridge

By Daniel Dickson and Ross Kerber

STOCKHOLM/CAMBRIDGE, Mass. (Reuters) - British-born Oliver Hart and Finland's Bengt Holmstrom won the Nobel Economics Prize on Monday for work that addresses a host of questions from how best to reward executives to whether schools and prisons should be privately owned.

Their findings on contract theory have implications in such areas as corporate governance, bankruptcy law and political constitutions, said the Royal Swedish Academy of Sciences, which announced the 8 million Swedish crown ($928,000) prize.

"This theory has really been incredibly important, not just for economics, but also for other social sciences," said Per Stromberg, a member of the prize committee and professor at the Stockholm School of Economics.

Contract theory considers, for example, whether managers should get paid bonuses or stock options, or whether teachers or healthcare workers should be paid fixed rates or by performance-based criteria.

Holmstrom, a 67-year-old professor of economics and management at the Massachusetts Institute of Technology, said he had been friends with Hart for decades and was thrilled to be sharing the award with him.

"He's my closest intellectual friend here and a personal friend also. And he has been important for my thinking and I hope I have been important for his thinking," he told Reuters Television at his home in Boston.

'HUG MY WIFE'

Hart, an economics professor at Harvard University, has focused on understanding which companies should merge and with what mix of financing, and when institutions such as schools, prisons and hospitals should be privately or publicly owned.

At Harvard since 1993, Hart has argued that the incentives for cost reductions in privatized services, such as private prisons in the United States, are typically too strong.

Hart thought his research could win him the prize at some point. He said he awoke about 4:40 a.m. EDT and wondered whether it was getting too late to get a telephone call.

"Then fortunately the phone rang," Hart was quoted as saying on the official Twitter account of the Nobel Prize. "My first action was to hug my wife, wake up my younger son."

Holmstrom has studied the setting of contracts for workers from teachers to corporate bosses. He concluded that in high-risk industries, pay should lean toward a fixed salary, while in more stable sectors pay should be more biased toward performance rewards.

Asked at a Cambridge, Massachusetts, news conference about the current high level of executive pay, Holmstrom said, “It is somehow demand and supply working its magic.”

But he said he was concerned about the state of income distribution and the unhappiness of many workers about stagnant wages and incomes.

“I’d much rather live in a society where this wasn’t happening,” he said. “But I’m not prepared to speak about the question about how to repair it” because it would mean tinkering with complex markets.

The nine academics who won Nobel prizes this year in medicine, physics, chemistry and economics included five Britons, a Frenchman, a Finn, a Dutchman and a Japanese.

© Reuters. Finland-born Bengt Holmstrom, winner of the 2016 Nobel Prize for Economics, speaks to the media in Cambridge

Six of the winners, including all five Britons, are based at U.S. universities.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.