"(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 (US$928,000) 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.
Economics 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.
