What exactly is ‘contract theory’?
At first glance, it may seem a dizzyingly impenetrable subject matter, but Oliver Hart and Bengt Holmström’s contributions to ‘contract theory’ have revolutionized the study of economics. They have recently been awarded the 2016 Nobel Prize in Economic Sciences, with the presentation committee noting how their pioneering analysis laid the “intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions.”