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Oliver Hart, Bengt Holmstrom Win 2016 Nobel Prize in Economics

STOCKHOLM — British-born Oliver Hart and Finland-born Bengt Holmstrom won the 2016 Nobel Economics Prize for their contributions to contract theory, helping the understanding of issues like the performance-based pay for top executives.

Image: SWEDEN-NOBEL-ECONOMY-ECONOMICS-AWARD
Winners of the Nobel Prize in Economic Sciences British-American economist Oliver Hart and Bengt Holmstrom of Finland are displayed on a screen during a press conference to announce the winner of the 2016 Nobel Prize in Economic Sciences at the Royal Swedish Academy of Sciences in Stockholm on October 10. JONATHAN NACKSTRAND / AFP - Getty Images

"(Their work) lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions," the Royal Swedish Academy of Sciences said on announcing the 8 million Swedish crown ($928,000) prize.

Hart is economics professor at Harvard University while Holmstrom is professor of economics and management at the Massachusetts Institute of Technology.

"I woke at about 4:40 and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang," Hart was quoted as saying on the official Twitter account of the Nobel Prize.

"My first action was to hug my wife, wake up my younger son."

Hart's work has helped understanding which companies should merge and the right mix of financing and when institutions such as such as schools should be privately or publicly owned, the academy said in a statement.

Holmstrom's work helped how to formulate contracts for executives, the statement added.

The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.

Economics is the fifth of this year's Nobels. The prizes for physiology or medicine, physics, chemistry and peace were awarded last week. The literature prize is due on Thursday.