Economics Nobel Rewards Theories Worth Building On

Often the public is not impressed by explanations of why the Nobel Prizes in economics are deserved. The work of 1985 laureate Franco Modigliani included a highly influential life-cycle savings model, and I recall hearing that Professor Modigliani won by pointing out that people need to save for old age.

This year we have two winners, Oliver Hart, a British-born economist at Harvard University, and Bengt Holmström, a Finnish-born economist at the Massachusetts Institute of Technology, who are economic theorists and whose papers are difficult to read, even for many professional economists. Nonetheless their work has significantly deepened our understanding of contracts and corporations. They’ve built a technical framework for other researchers to build on, which is much harder to do than to throw off useful insights. So don’t be underwhelmed if some of their work, when conveyed in sound bites, seems like something you heard last week at the water cooler.