American economists Leonid Hurwicz, Eric Maskin and Roger Myerson won the 2007 Nobel for economics on Monday for laying the foundations of an economic theory that determines when markets are working effectively.
Hurwicz, a Russian-born American citizen, is at 90 years old the oldest-ever recipient of a Nobel prize.
The Royal Swedish Academy of Sciences said the three established "mechanism design theory", which looks at how well different institutions fare in allocating resources and whether government intervention is needed.
Hurwicz initiated the theory and it was further developed by Maskin of Princeton University and Myerson of the University of Chicago, the academy's citation said.
Hurwicz, born in Moscow in the year of the Russian revolution, is a professor emeritus of economics at University of Minnesota in Minneapolis.
The economists will share a prize of 10 million Swedish crowns ($1.57 million).
Maskin, reached by telephone at his home in New Jersey, said he was overwhelmed by the news.
"I'm completely delighted. It's a thrill to be in their company," he told Reuters, referring to other economists who had won the coveted prize. "But it hasn't really registered yet. I'm still so befuddled by the news."
Maskin, whose son is disabled, said he planned to donate some of his award to the Camphill Foundation, which works with disabled people.
"My wife and I have thought in the past about what would happen if we won the lottery," he said.
Hubert Fromlet, chief economist at Swedish banking giant Swedbank, said that the microeconomic theories these three had developed had become increasingly popular.
"Microeconomics has gained momentum in research," he said, adding that at economic conferences it was now common to hear about decision-making processes. "They are well-known economists within the academic field."
The academy said mechanism design theory now plays a central role in many areas of economics and parts of political science.
"Adam Smith's classical metaphor of the invisible hand refers to how the market, under ideal conditions, ensures an efficient allocation of scarce resources," the academy said.
"But in practice conditions are usually not ideal," it added. "For example, competition is not completely free, consumers are not perfectly informed and privately desirable production and consumption may generate social costs and benefits."
Eric Maskin was born in New York City in 1950 and received a doctorate in applied mathematics from Harvard in 1976. He is currently the Albert O. Hirschman Professor of Social Science, at the Institute for Advanced Study, Princeton University.
Roger Myerson was born in Boston in 1951. Like Maskin, he finished a PhD in applied mathematics at Harvard in 1976. He is currently the Glen A. Lloyd Distinguished Service Professor at the University of Chicago.
The economics prize is not part of the original crop of Nobel Prizes set out in Alfred Nobel's 1895 will.
The prize, established in 1968 and first awarded in 1969, is officially called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.