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̽»¨Ö±²¥ made their announcement this morning (October 10), stating: “Modern economies are held together by innumerable contracts. ̽»¨Ö±²¥new theoretical tools created byÌýHartÌýandÌýHolmströmÌýare 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 developedÌýcontract 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 theÌýAndrew E. Furer Professor of Economics atÌý.ÌýFrom 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 ̽»¨Ö±²¥ in 1974.

In the mid-1980s, Oliver Hart made fundamental contributions to a new branch of contract theory that deals with the important case ofÌýincomplete 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.

Professor HartÌýbecomes the 96thÌýCambridge affiliateÌýto be awarded a Nobel Prize after last week’s Nobel Prize in Physics went to Cambridge alumni David Thouless (Trinity Hall, 1952), Duncan Haldane (Christ’s, 1970) and Michael Kosterlitz (Gonville and Caius,Ìý1962).Ìý

More details on previous Cambridge winners can be found here: /research/research-at-cambridge/nobel-prize