The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2016
Born: 18 April 1949, Helsinki, Finland
Affiliation at the time of the award: Massachusetts Institute of Technology (MIT), Cambridge, MA, USA
Prize motivation: "for their contributions to contract theory."
Prize share: 1/2
Bengt Holmström was born in Helsinki, Finland, and belongs to the Swedish-speaking minority. He studied mathematics and physics at the University of Helsinki and operations research at Stanford University, Palo Alto, California, where he received his PhD in 1978. Thereafter he has been affiliated to the Stockholm School of Economics, Sweden, Northwestern University, Evanston, Illinois, Yale University, New Haven, Connecticut, and the Massachusetts Institute of Technology, where he has been working since 1994. Bengt Holmström is married with one son.
Contracts play a fundamental role in society and the economy by protecting against uncertainty and contribute to cooperation. Bengt Holmström has developed theories on contracts. At the end of the 1970s, he analyzed how a "principal", for example, the owner of a company, should formulate an optimal contract for an "agent", for example, the company's CEO, whose actions the principal cannot fully monitor. These analyses have been significant for, among other things, governance of companies and the design of laws and institutions.