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. Last Updated: 07/27/2016

Briton and Canadian Awarded Nobel Prize

STOCKHOLM -- A Briton and a Canadian won the Nobel economics prize Tuesday for developing ways to reach agreements when the parties don't have the same information -- research that applies to such various decisions as how to devise a tax code or whom to hire for a job.

James Mirrlees, 60, of Britain's Cambridge University and William Vickrey, 82, an emeritus professor at New York's Columbia University, won the prize for their work in "asymmetric information.''

Essentially, that means situations in which one party knows something that another doesn't or in which important information can't be predicted.

Although their separate studies focused on relatively specific areas such as auctions and subway fares, the groundbreaking work has led to better understanding of economic activity ranging from insurance and credit markets to tax systems, the Royal Swedish Academy of Sciences said in its prize citation.

"This is a very important contribution," said academy member Karl-Gustaf Loefgren. "These men set up the formal methodology ... which has been put into textbooks of micro-economic theory as a standard fact. It's not very often that you get new chapters into textbooks."

Joergen Weibull, a member of the prize committee, said a basic example of "asymmetric information" would be an employer assessing an applicant: The employer does not know what kind of a person the applicant is, how hard he might be disposed to work or even much about his health.

"This information is instrumental in deciding on social security, job insurance and other factors in society," Weibull said.

The 7.4 million kronor ($1.12 million) prize is the third of the six Nobels to be awarded this year.

"Incomplete and asymmetrically distributed information has fundamental consequences, particularly in the sense that an informational advantage can be exploited strategically," the citation said.

For example, "an auctioneer does not have complete information about the willingness to pay of potential buyers" or perhaps "the government has to devise an income tax system without much knowledge about the productivity of individual citizens,'' the citation said.

Vickrey's research has led to one form of auction known as the "Vickrey auction." In such auctions, the bids are sealed, but the person who submits the highest bid pays only the price stated in the next-highest bid.

Such an auction is "socially efficient. The object goes to the person with the highest willingness to pay, and the person in question pays the social opportunity cost which is the second-highest bid," the academy citation said.

Vickrey concentrated on studying different types of auctions and "how they can best be designed so as to generate economic efficiency." His research has been extended to practical applications, including the auction of treasury bonds.

Mirrlees has made major contributions in solving problems associated with optimal income taxes.