Hart and Holmström’s Contributions to Contract Theory

László Kóczy () and Hubert Janos Kiss

Financial and Economic Review, 2017, vol. 16, issue 1, 162–174

Abstract: The Prize in Economic Sciences in Memory of Alfred Nobel 2016 was awarded jointly to Oliver Hart and Bengt Holmström for their contributions to contract theory. Contract theory is a field of applied game theory, bringing into focus the conflict between the owner – the principal – and the company’s appointed manager – the agent. In this study, we present the Principal–Agent model proposed by Holmström and describe a few offshoots of the original model, before proceeding to discuss Hart’s research on the aspects of ownership in Principal–Agent models. Although the two laureates are primarily known for their theoretical models, in our introduction we disregard the unnecessary formulas and illustrate the models with examples.

Keywords: contract theory; incentives; the Principal-Agent problem; Nobel prize; risk; property rights (search for similar items in EconPapers)
JEL-codes: C72 D82 D86 (search for similar items in EconPapers)
Date: 2017
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