Nobel Economics Winner: CEO Bonuses Are 'Too Complicated'

Oliver Hart of the UK and Bengt Holmstrom of Finland are pioneers in contract theory
By Newser Editors and Wire Services
Posted Oct 10, 2016 5:50 AM CDT
Pioneers in Contract Theory Scoop Up Economics Nobel
In this Nov. 2, 2015, file photo, Finnish professor Bengt Holmstrom of MIT attends a business seminar in Helsinki.   (Jussi Nukari/Lehtikuva via AP, File)

British-born Oliver Hart and Bengt Holmstrom of Finland won the Nobel Memorial Prize in Economic Sciences for their contributions to contract theory, shedding light on how contracts help people deal with conflicting interests. The Royal Swedish Academy of Sciences said their theories "are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design," per the AP. For example, contract theory can be used to analyze performance-based pay for CEOs or deductibles and co-pays for insurance, the academy said. As for what he thinks of bonuses resulting from contracts, an area that makes up an important part of his research, Holmstrom told reporters Monday morning, "My personal view is they are too complicated today," per the Guardian.

Hart has spent his academic tenure in the US and is currently the Andrew E. Furer Professor of Economics at Harvard, where he's taught since 1993, per his university bio. Holmstrom, meanwhile, has also spent his academic career in the States and is now the Paul A. Samuelson Professor of Economics at MIT. The economics prize is not an original Nobel Prize: It was added to the others in 1968 by Sweden's central bank. The Nobel Prizes in medicine, physics, and chemistry and the Nobel Peace Prize were announced last week. This year's Nobel announcements will finish Thursday with the literature award. Each award is worth about $930,000. The laureates will collect them on Dec. 10, the anniversary of prize founder Alfred Nobel's death in 1896. (More Nobel Prize in Economics stories.)

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