STOCKHOLM, Oct. 10 (Xinhua) -- The 2016 Nobel Prize in Economics, or officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, has been awarded jointly to Oliver Hart and Bengt Holmstrom "for their contributions to contract theory."

Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmstrom are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design, said an official statement released by the Royal Swedish Academy of Sciences here on Monday.

"This year's laureates have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities," it added.

Through their initial contributions, Hart and Holmstrom launched contract theory as a fertile field of basic research. Over the last few decades, they have also explored many of its applications. Their analysis of optimal contractual arrangements lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions, according to the statement.

Answering questions at the press conference after the announcement, Holmstrom said he was "very happy, very lucky, and grateful" to win the prize.

Hart, born in Britain in 1948, is a professor of economics at Harvard University in the United States. Holmstrom, born in Finland in 1949, is an economics and management professor at the Massachusetts Institute of Technology, also in the United States.

This year's prize amounts to eight million Swedish krona (930,000 U.S. dollars), to be shared equally between the two laureates.