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, Russian-born but an American citizen, is 90 years old and is 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 and Myerson of the University of Chicago, the academy's citation said.
"Today, mechanism design theory plays a central role in many areas of economics and parts of political science," it said.
"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."
The economics prize is not part of the original crop of Nobel Prizes set out in Alfred Nobel's 1895 will. It was established in 1968 and is officially called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.