UK-born Oliver Hart and Finland-born Bengt Holmstrom have won the 2016 Nobel Economics Prize for "their contributions to contract theory", the Royal Swedish Academy of Sciences announced.
"(Their work) lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions," the award-giving body said on announcing the 8 million Swedish crown ($A1.2 million) prize.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.
Economy is the fifth of this year's Nobels. The prizes for physiology or medicine, physics, chemistry and peace were awarded last week. The literature prize is due on Thursday.
Hart is economics professor at Harvard University while Holmstrom is professor of economics and management at the Massachusetts Institute of Technology.
"I woke at about 4:40 and was wondering whether it was getting too late for it to be this year, but then fortunately the phone rang," Hart was quoted as saying on the official Twitter account of the Nobel Prize.
"My first action was to hug my wife, wake up my younger son."
Hart's work has helped understanding which companies should merge and the right mix of financing and when institutions such as such as schools should be privately or publicly owned, the academy said in a statement.
Holmstrom's work helped how to formulate contracts for executives, the statement added.
Holmstrom said he was delighted at winning the award.
"I was dazed, like most prize winners, very surprised and very happy," he said, speaking by phone to reporters at the Royal Swedish Academy of Sciences.
Holmstrom's work has demonstrated how the best contracts weigh risks against incentives, the academy said. He then applied that theory to more realistic settings, including job promotion or free-riding in the workplace.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It was not part of the original group of awards set out in dynamite tycoon Nobel's 1895 will.
