British-born Oliver Hart and Bengt Holmstrom of Finland won the Nobel Prize in Economics for shedding light on how contracts help people deal with conflicting interests, from CEO pay packages to whether to privatize a public service.
In announcing the award yesterday, the Royal Swedish Academy of Sciences said that “the new theoretical tools created by Hart and Holmstrom are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design.”
“These kinds of insights into how we should design contracts are very important because we don’t want to give the wrong incentives to people,” Nobel committee member Tomas Sjostrom said. “We don’t want to reward them for things that they were not responsible for. We want to reward the right thing.”
The London-born Hart, 68, who is a US citizen, has taught at Harvard University in Cambridge, Massachusetts, since 1993.
Holmstrom, a 67-year-old Finnish citizen, works at the nearby Massachusetts Institute of Technology and has also served on the board of Finnish mobile phone company Nokia.
Speaking to reporters in Stockholm by telephone, Holmstrom said he felt very lucky and grateful.
“I certainly did not expect it, at least at this time, so I was very surprised and very happy, of course,” he said.
In the 1970s, Holmstrom showed how a principal — for example, a company’s shareholders — should design an optimal contract for an agent, such as the CEO.
His “informativeness principle” showed how the contract should link the agent’s pay to information relevant to his or her performance, carefully weighing risks against incentives, the academy said.
Hart made fundamental contributions to a new branch of contract theory in the mid-1980s.
“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.”
‘NO EQUILIBRIUM’: Taiwan’s increased defense spending is a good step, but it needs to do more to have the ability to deter aggression from China, a senior US official said The US plans to sell as many as seven major weapons systems — including mines, cruise missiles and drones — to Taiwan, four people familiar with the discussions said. Pursuing seven sales at once is a rare departure from years of precedent in which US military sales to Taiwan were spaced out and carefully calibrated to minimize tensions with Beijing. However, US President Donald Trump’s administration has this year become more aggressive with China, and the sales would land as relations between Beijing and Washington are at their lowest point in decades over accusations of spying, lingering trade tensions, disputes about the
ON THEIR OWN: The KMT has decided not to participate as a party at this year’s forum, and if any members do go, they would not be representing the party, Alicia Wang said The Chinese Nationalist Party (KMT) yesterday announced that it would not send a delegation “as a political party” to this year’s Straits Forum, after a Chinese TV program described the planned visit to the annual meeting as “suing for peace.” The 12th forum is scheduled to open in Xiamen, China, on Saturday. On Tuesday last week, the KMT announced that former legislative speaker Wang Jin-pyng (王金平) would lead the party’s delegation to the forum, with KMT Secretary-General Lee Chien-lung (李乾龍) as deputy head. However, on Thursday last week, China Central Television’s (CCTV) Yangshipin (央視頻) program, hosted by Li Hong (李紅), included a headline
RIVERSIDE CAMP: As rescuers continued their search for a missing man, Taipower said that the floodgates at a hydro plant on the Lishi Creek opened due to a malfunction Three people have been confirmed dead and one was missing after being swept away by a flash flood while camping in Nantou County’s Renai Township (仁愛), police said yesterday. Six people from two families were camping near Lishi Creek (栗栖溪) when the riverbanks were suddenly flooded just after 4am, carrying away four of the campers — including two children — who were asleep in their tents, police said. A man who was among those swept away was able to climb ashore and call for help, police said, adding that another man had gone missing in the turmoil at the campsite.
WORKING OVERTIME? NTU professor Lee Duu-jong denied that he had held a part-time position at a Chinese university or joined China’s Thousand Talents Program A candidate for the post of National Taiwan University of Science and Technology (NTUST) president yesterday dropped out of the race following a report questioning his links to Chinese academia and government programs. Lee Duu-jong (李篤中), a professor at National Taiwan University’s (NTU) chemical engineering department, was a member of China’s Changjiang Scholars’ Program in 2006 and was on the list of its Thousand Talents Program in 2017, a report by Chinese-language Mirror Media magazine said yesterday. The article said that Lee is suspected of having held a part-time job at the Harbin Institute of Technology in China and was the recipient