Page 23 - Ekonomija i Biznis_noemvri 2016.indd

Bengt Holmstrom (left) from the Institute of Technology of Massachusetts and Oliver Hard (right) from РУЛБУРКИСКУАЗ
Harvard University, winners of the Nobel Prize in Economic Sciences for 2016

of the business risk of the company. In general liquidity of the stock exchange
this way, the management contracts es- markets. In this regard, Holmstrom in-
tablish a balance between the insurance troduces the so called Informativeness
against risk and the incentive for more Principle. According to this principle,
productive operation. the income of the manager should be re-
lated to different measures for the per-
The Nobel Prize winner Bengt Holm- formances of the company which could
strom applies this model of thinking in provide information for the real efforts
the analysis of employment contracts. of the manager. For example, an indica-
In these contracts there is an interac- tor can be used about the relative move-
tion between the employer (as a prin- ment of the price of shares compared to
cipal) and the employee (as an agent). the prices of shares of other companies
How to formulate an optimal contract in the same industry.
which will create optimal motivational
structure in the employee? Could this Such an analysis of the employment
be achieved if, for example, the income contracts offers another conclusion.
of the manager is related exceptionally Namely, for industries where business
to the movement of the market price of performances vary a lot, and in this re-
the company’s share? This would not be gard they are estimated as high-risk in-
appropriate because the movement of dustries, the managerial compensations
the company’s share is also affected by should primarily be with a fixed compo-
factors beyond the control of the com- nent. The reason for this is that the high
pany’s manager, such as the changes in variability of the profits indicates that
the economy as a whole or the changes there are also many other factors which
at the level of the entire industry where are beyond the manager’s control, there-
the company acts, or changes in the from the managerial income should not

The Nobel Prize in Economic Sciences for 2016 is shared by two eminent economists
from two supreme American universities: Bengt Holmstrom from the Massachusetts
Institute of Technology and Oliver Hart from Harvard University. In the official an-
nouncement of the Nobel Committee it is indicated that they get the Nobel Prize in
Economic Sciences for “their contributions to contract theory”

November 2016 23