Professors Oliver Hart of Harvard and Bengt Holmstrom of MIT won the Nobel Prize in Economics Sciences on Monday. The professors have won prize money of 8 million Swedish krona (around Rs 6.15 crore). The Royal Swedish Academy of Sciences said the pair won for their work on contractual theory, and that their work focussed on contracts like insurance claims, property rights and salaries. Their research has also helped explain how contracts help people deal with conflicting interests, AP reported.

Holstrom’s work has also looked at the issue of executive pay, The Guardian reported, and examined whether chief executives are overpaid for “being lucky”, like for instance when oil prices rise. Hart has contributed significantly to a new branch of contract theory that examines incomplete contracts. The Academy said their theories “are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design”.

In a press release, the Academy further explained: 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.