Nobel prize economics speed dating

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Bengt Holmström, an influential MIT economist and long-time faculty member, has been named a winner of the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, for his work on contract theory.Holmström was named co-winner of the prize along with Oliver Hart of Harvard University.

In the 1982 paper “Moral Hazard in Teams,” he concluded that dividing a firm’s income among its workers could lead to a free-rider problem, in which some employees contribute less than others, relative to their compensation.One of these, the “informativeness principle,” was developed and published by Holmström in 1979, addressing the “principal-agent problem” (the structure of contracts between employers and employees).This principle suggests that optimal contracts should structure compensation based on “all outcomes that can potentially provide information about actions that have been taken,” as the Academy observes.In this case, Holmström suggested, outside ownership of firms can produce more flexible compensation and boost individual incentives.Holmström co-authored another 1982 paper, “Managerial Incentive Problems: A Dynamic Perspective,” whose model of career trajectories was highlighted in the Academy’s announcement.

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