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Oliver Hart and Bengt Holmstorm Win Nobel in Economics

Oliver Hart and Bengt Holmstrom were on 10 October 2016 awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their contributions to contract theory.
●    They have developed a 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 privatization of public-sector activities.
●    The new theoretical tools created by Hart and Holmstrom are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.
●    In the late 1970s, Bengt Holmstrom demonstrated how a principal should design an optimal contract for an agent, whose action is partly unobserved by the principal. 
●    Holmström’s informativeness principle stated precisely how this contract should link the agent’s pay to performance-relevant information. 

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