Yesterday I woke up to the news that Bengt Holmström was awarded the Nobel Prize in Economics along with Oliver Hart. I have had the good fortune to have had Bengt as one of my PhD thesis advisors at MIT, together with my thesis chair, Erik Brynjolfsson and Birger Wernerfelt. All three of them were incredibly generous with their time, which is even more remarkable given that it became increasingly clear that I was not going to pursue an academic career.

Bengt’s work on incentives is hugely important to our understanding of how organizations work. These days it is once again fashionable among people writing about the rise of networks and platforms to invoke Coase. But while Coase started asking the right questions about the existence of firms, it is the work of Holmström and Hart that provided the answers. They showed how firms and contracts shape incentives and how that creates important tradeoffs (see my post here for a brief explanation of how this also explains the rise of networks). I hope that as a result of the Nobel Prize their work will find the much broader popular recognition it so amply deserves.

Bengt also taught a wonderful class on organizations at the Sloan School. I just quickly checked the course catalog and it doesn’t seem that it is being offered at the moment. Unlike his Nobel winning work the class was not at all theoretical. Instead it used the ideas and intuition from his work to think about success and failure in actual organizations using case studies. And beyond that it also brought in different and highly relevant perspectives, such as a paper by Alfie Kohn. I was the teaching assistant for that class for two years and learned a lot from that which I find myself referring back to now all the time as a board member working with founders and CEOs on the structure of their organizations. 

In one of life’s funny serendipities I am at the airport, about to fly up to Boston and will stop by MIT today and am looking forward to a breakfast with Erik tomorrow. I will make sure to stop by Bengt’s office on the off chance he is there and I can congratulate him in person.