Williamson, a professor at the University of California Berkeley, was honoured with the other half of the prize "for his analysis of economic governance, especially the boundaries of the firm."

He has studied the existence of large firms and argued that hierarchical organisations represent alternative governance structures which differ in their approaches to resolving conflicts of interest.

Williamson's work may be considered to be related to one of the basic theories explaining the purpose of a company or firm, which is to manage contracts.

A company manages contracts with a wide range of parties so as to produce a benefit beyond that which a specific customer could achieve itself. Williamson’s work touches on ways in which the firm can best aggregate some contracting activities to best advantage.

"According to Williamson's theory, large private corporations exist primarily because they are efficient ... When corporations fail to deliver efficiency gains, their existence will be called in question," the Nobel committee said.

Landis Gabel, a senior economics and management professor at top French business school INSEAD and who studied under Williamson in the 1970s, told AFP the choice of Williamson and Ostrom was "timely".

"Both the Nobel laureates this year have been working on areas that kicked off with the concept of failing markets," he said.

"In the one case (in Ostrom's work) the failure has to do with common resources and the other (Williamson's) with imperfections that have implications for the structure of business firms," he said.

"But both of these laureates have done work quite different from the more traditional, purely theoretical work that drives off of perfect markets, perfectly rational behaviour."

The Economics Prize is the only one of the six Nobel prizes not created in Swedish industrialist Alfred Nobel's 1896 will -- it was created much later to celebrate the 1968 tricentary of the Swedish central bank and was first awarded in 1969.

The Economics Prize wraps up this year's Nobel season, dominated by Americans.