Oliver Hart GS ’74 has been awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his contributions to contract theory, according to a press release by the Nobel Foundation.
Hart was jointly awarded the prize with Bengt Holmström, economics professor at the Massachusetts Institute of Technology.
“Hart made fundamental contributions to a new branch of contract theory that deals with the important case of incomplete contracts,” the Royal Swedish Academy of Sciences said in its press release announcing the award.
“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," the press release stated.
Hart’s studies focused on incomplete contracts and how they are unable to predict future conflicts.
“[A] contract that cannot explicitly specify what the parties should do in future eventualities, must instead specify who has the right to decide what to do when the parties cannot agree. The party with this decision right will have more bargaining power, and will be able to get a better deal once output has materialised,” the academy said in an explanation of his work.
His work can be applied to property rights, financial contracts, and privatization of the public sector. Hart co-authored work on the incentives that private and public prison owners have, which has been instrumental to the debate on private prisons in America. Public owners have little incentive to improve quality or to reduce expenses at the cost of quality while private owners have strong incentives to do both. For example, the Federal government said in August that it will phase out its use of private prisons for Federal inmates.
In work that Hart published with Holmström in 1986, the two explored performance-based pay and found that contracts are simpler in practice than in theory because a complete list of expectations would be counterproductive; employees would focus too much on doing only what was on that list.
Hart earned his Ph.D. in economics from the University in 1974. He follows in the footsteps of numerous other Princeton alumni and professors in earning the Nobel prize in economics, such as John Nash, Jr. GS ’50, Daniel Kahneman GS ’78, and Angus Deaton, who received the same award just last year. This marks the second year in a row the prize has been awarded to a University affiliate.
Currently the inaugural Andrew E. Furer Professor of Economics at Harvard University, Hart earned his B.A. in mathematics from Cambridge in 1969 and M.A. in economics from the University of Warwick in 1972, along with several other honorary degrees. Hart has also taught at the London School of Economics and MIT. Among other honors, Hart is a fellow of the American Academy of Arts and Sciences, a corresponding fellow of the British Academy, and president of the American Law and Economics Association.