British-born Oliver Hart and Finland-born Bengt Holmstrom won the 2016 Nobel Economics Prize for their contributions to contract theory.

This helps the understanding of issues like the performance-based pay for top executives. 

"Their work lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions," the Royal Swedish Academy of Sciences said on announcing the 8 million Swedish crown prize. 

Hart is economics professor at Harvard University while Holmstrom is professor of economics and management at the Massachusetts Institute of Technology.
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. 

The economics prize, officially called the Sveriges RiksbankPrize 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.

Last year, the award went to US-British researcher Angus Deaton for his groundbreaking work on poverty.