British-American economist Oliver Hart and Bengt Holmstrom of Finland have won the Nobel Economics Prize for their work on contract theory, according to the jury.

The pair will share the $922,000 prize.

"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," the jury said on Monday.

"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."

READ MORE: Scottish economist Angus Deaton awarded 2015 Nobel Prize

Their work has laid "an intellectual foundation" for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions.

Hart, born in 1948, is an economics professor at Harvard University in the US, while Holmstrom is a professor of economics and management at Massachusetts Institute of Technology.

Speaking to reporters in Stockholm by telephone, Holmstrom said he felt very lucky and grateful.

Ig-Nobels award weird science

"I certainly did not expect it, at least at this time, so I was very surprised and very happy, of course," he said.

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

The economics prize is unique among the Nobel awards in that it was created by the Swedish central bank in 1968 - the others were all set up through the 1895 will of Swedish inventor and philanthropist Alfred Nobel.

The economics prize is the fifth of the six Nobel prizes to be announced this year.

Last week, the awards for medicine, physics, and chemistry were announced, as well as the peace prize, which went to Colombia's President Juan Manuel Santos for his efforts to end a half-century war with the FARC rebels.

The final prize, for literature, will be announced Thursday.

The Nobel prize consists of a diploma, a gold medal and cheque for eight million Swedish kronor ($922,000), which the laureates will receive at a ceremony in Stockholm on December 10.

Source: Agencies