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We are delighted to report that Oliver Hart, Fellow in Economics at Churchill College from 1975–1981, has been jointly awarded the 2016 Sveriges Riksbank Prize in Economic Sciences, along with Bengt Holmström of MIT for their work in the field of contracts. This is the 32nd Nobel prize awarded to a member of the College.
The Nobel Assembly made their announcement this morning (October 10), stating: “Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.
"Society’s many contractual relationships include those between shareholders and top executive management, an insurance company and car owners, or a public authority and its suppliers. As such relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions.
"This year’s laureates have developed 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 privatisation of public-sector activities."
Professor Hart is currently the Andrew E. Furer Professor of Economics at Harvard University. From 1975 to 1981, Hart was an Assistant Lecturer and then Lecturer at the Faculty of Economics, and a Fellow of Churchill College. He was born in London in 1948 and gained his PhD from Princeton University in 1974.
In the mid-1980s, Oliver Hart made fundamental contributions to a new branch of contract theory that deals with the important case of incomplete contracts. Because it is impossible for a contract to specify every eventuality, this branch of the theory spells out optimal allocations of control rights: which party to the contract should be entitled to make decisions in which circumstances?
Hart’s findings on incomplete contracts have shed new light on the ownership and control of businesses and have had a vast impact on several fields of economics, as well as political science and law. His research provides us with new theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and when institutions such as schools or prisons ought to be privately or publicly owned.
Originally published by the University of Cambridge
Image credit: Nobelprize.org