Bengt Holmström gives a lecture to Aalto students

Students of Aalto University had an opportunity to serve as a test audience to Professor Bengt Holmström, who recently won the Nobel Prize in Economic Sciences. The Nobelist will be presenting a lecture in the Nobel Prize ceremonies in Stockholm in December. The audience gathered at the School of Business had a taster of this presentation, although the contents will of course be refined before the actual presentation. People heard both theoretical reflections on incentives and practical career tips.

Each job is important

As a young student of mathematics and physics, Bengt Holmström worked at Ahlström before moving to the United States. ‘My job was to collect data from people in factories and offices and that is where I came across the different views and motives of the management and the employees. I became interested in incentives and then also more broadly in economics,’ says Holmström.
‘Those two years at Ahlström have paid me dividends throughout my career. Your first jobs, the way they influence you, and the people you meet will direct your thinking. It is important to know how a company works. Although I am a theoretician, I also have a strong sense of relevance.’

Bengt Holmström has served in the Aalto University Board since the early stages of the University.

Now, more than 30 years later, Bengt Holmström is an awarded economist at MIT, one of the most prestigious universities in the world. He is a member of the Aalto University Board and an active participant in economic policy discussions in Finland.

Incentive issues are multifaceted

During his career, Bengt Holmström has studied contracts between different operators, and in his lecture shed light on one form of contractual practices, incentives. In the lecture, Holmström explained the development from the principal-agent problem of the 1970s to today's rich set of instruments.

Incentives concern many areas of society, including the public sector. Holmström was asked by the audience, what the public sector could learn from the private sector. ‘The goals and operating practices in the public sector are entirely different from those of businesses. Please don't go and copy the incentive systems you see in companies to the public sector,’ answered Holmström.

We must let politicians concentrate on their work

And what about politicians? What kind of incentives should they have? ‘In my opinion, we have been moving to a bad direction recently as there is a desire for a wrong kind of transparency. We should let politicians do their work, represent citizens and understand the context of issues. As a rule, people want to do good, and so do politicians. This wrong kind of scrutiny is already a threat to representative democracy,’ said Holmström.

Questions received from the audience in advance were presented to the Nobelist by Professor Marko Terviö, who was himself a student of Holmström’s.

Photos: Jaakko Kahilaniemi.