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Using the basic principal-agent model, he showed how the optimal contract carefully weighs risks against incentives.
His research provides us with new theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and when institutions such as schools or prisons ought to be privately or publicly owned. The Academy takes special responsibility for the natural sciences and mathematics, but endeavours to promote the exchange of ideas between various disciplines.In the mid-1980s, Oliver Hart made fundamental contributions to a new branch of contract theory that deals with the important case of . Samuelson Professor of Economics, and Professor of Economics and Management at Massachusetts Institute of Technology, Cambridge, MA, USA.Because it is impossible for a contract to specify every eventuality, this branch of the theory spells out optimal allocations of control rights: which party to the contract should be entitled to make decisions in which circumstances? The Prize amount: 8 million Swedish krona, to be shared equally between the Laureates.So when I go to the grocery store, if I spend a lot of time scanning the shelves, I could be doing other things.And if I want to buy a new house and I go from open house to open house, I could be doing other things.