Backgrounder: Latest winners of Nobel Prize in Economics

*American economists Alvin E. Roth and Lloyd S. Shapley shared 2012 Nobel Prize for Economics.

*The duo won the award "for the theory of stable allocations and the practice of market design."

*Roth is from Harvard University and Shapley from University of California, USA.

American economists Alvin E. Roth and Lloyd S. Shapley shared 2012 Nobel Prize for Economics, announced Staffan Normark, Permanent Secretary of the Royal Swedish Academy of Sciences in Stockholm on Monday.

The duo won the award "for the theory of stable allocations and the practice of market design," said Normark.

"This year's prize is awarded for an outstanding example of economic engineering," said the academy in a statement.

The two researchers worked independently, but their empirical investigations, experiments and practical design have generated a flourishing field of research and improved the performance of many markets, the academy added.

Roth and Shapley tackled a central economic problem: how to match different agents as well as possible.

"The prize rewards the two scholars who have answered these questions on a journey from abstract theory on stable allocations to practical design of market institutions," the academy explained.

It was Roth who recognized that Shapley's theoretical results could clarify the functioning of important markets in practice.

Through a series of empirical studies, Roth and his colleagues showed that stability is the key to understanding the success of particular market institutions. Roth also substantiated the conclusion in systematic laboratory experiments.

Later, he also helped redesign existing institutions for matching new doctors with hospitals, students with schools and organ donors with patients.

"These reforms are all based on the Gale-Shapley algorithm, along with modifications that take into account specific circumstances and ethical restrictions, such as the preclusion of side payments," said the Nobel Committee in the statement.

Born in 1951 in the USA, Roth got his Ph.D in 1974 from Stanford University and is George Gund Professor of Economics and Business Administration at Harvard University and Harvard Business School. Shapley was born in 1923 and got his Ph. D in 1953 from Princeton University. He is Professor Emeritus at University of California.

The two laureates will equally share the 8 million Swedish kronor (about 1 million U.S. dollars) prize.

The economics award, established in 1968 and officially called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of the six prizes announced this year. It is not part of the original crop of Nobel Prizes set out in Alfred Nobel's 1895 will.

Sixty-nine Laureates had been awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel between 1901 and 2011.

The economic prize will be issued on Dec. 10 the day Nobel died together with prizes in Physiology or Medicine, Physics, Chemistry and Literature in Stockholm.