Does that mean that the manager’s pay should depend only on her firm’s share price? Holmström holds a joint appointment between the Department of Economics and the MIT Sloan School of Management.“MIT’s latest Nobel laureate is not only an extraordinary economic thinker,” said MIT President L. Rafael Reif while introducing Holmström at an on-campus press conference on Monday morning. Published: Tri Vi Dang & Gary Gorton & Bengt Holmström & Guillermo Ordoñez, 2017. Bengt Holmström in Wikipedia (Finnish) Bengt Holmström in Wikipedia (French) Nobel laureates in economics . "People don't do what you expect, they do what you inspect. He was elected a fellow of the American Academy of Arts and Sciences in 1993. Here is Bengt Holmström’s One key question he has considered is when incentives should be high-powered or when they should be more blunt. He has taught for a long time at MIT, was born in Finland, and is one of the most famous and influential economists in the field of contracts and industrial organization. “Bengt Holmström is also an outstanding citizen of MIT and a delightful human being.”Reif added that Holmström is “disarmingly honest, decent, forthcoming, objective, collaborative, [and] open-minded,” and equipped with a “world-class sense of humor.”The Royal Swedish Academy of Sciences, in granting the award, notes that contracts “are essential to the functioning of modern societies,” and states that the work of the two economists had been “invaluable in helping us understand real-life contracts and institutions, as well as the potential pitfalls when designing new contracts.”The Academy’s award cites multiple aspects of Holmström’s work on contracts that have contributed significantly to our understanding of the issue, dating to the 1970s.One of these, the “informativeness principle,” was developed and published by Holmström in 1979, addressing the “principal-agent problem” (the structure of contracts between employers and employees). In the 1982 paper “Moral Hazard in Teams,” he concluded that dividing a firm’s income among its workers could lead to a free-rider problem, in which some employees contribute less than others, relative to their compensation. A fixed salary, independent of any performance measures, would lead to a more balanced allocation of effort across tasks.”Speaking to reporters after his press conference, Holmström said he was gratified by the way that contract theory had become integrated into mainstream economics in recent decades.“Contract analysis is now everywhere,” Holmström said.At the press conference, Holmström was asked multiple questions about the ways his theoretical analysis could be applied to contemporary business practices and business contracts, from executive compensation to the level of pay for workers overall.While specific corporate cases vary, Holmström observed that a famously failed company such as Enron had misaligned incentives allowing executives to cash out, which he regarded as misguided — and said he hoped the academic research could further inform the corporate world.“I wish they would listen a little bit more to what we know and understand,” Holmström said.On worker compensation generally, Holmström noted that it was hard to judge whether incomes were always at appropriate levels given the many factors involved, but said that he found stagnant incomes generally to be “a worrisome development as far as I’m concerned.”Holmström, 67, joined the MIT faculty in 1994 and currently serves as the Paul A. Samuelson Professor of Economics. Holmström also said it was “wonderful to share the award” with Hart and credited MIT for providing a professional and intellectual home for over two decades. This informativeness principle does not merely say that payments should depend on outcomes that can be affected by agents. He received a master’s of science from Stanford in 1975, in operations research, and earned his PhD in 1978, from Stanford’s Graduate School of Business.Holmström first served as an assistant professor at the Swedish School of Economics and Business Administration, in 1978-79, and then became an assistant professor at Northwestern University. Holmström is also an elected foreign member of the Royal Swedish Academy of Sciences and a member of the Finnish Academy of Sciences and Letters.
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