Whoa.
October 2025, the Nobel Prize in Economics was awarded to researchers Philippe Aghion (France), Peter Howitt (Canada) and Joel Mokyr (United States & Israel).
This is the 2nd Nobel Prize in Economics which rewards work on innovation!
The first of these was with Daniel Kahneman in 2002, for this work on functional fixity/judgment heuristics, i.e. everything that prevents us from leaving our usual thought box. I've already talked about it here, and it's a subject I talk about all the time at an innovation conference.
Here is a summary of the theories of Philippe Aghion, a fairly divisive personality, just to be able to talk about it during dinners without having read it;) - plus a few references to go further.
Innovation is his obsession
When I discovered the work of Philippe Aghion a few years ago, I was struck by the intensity of his conviction: innovation is not a buzzword for him, a useful concept, it is the engine of both economic and social progress.
For him, all sustainable growth must go through what Schumpeter called creative destruction: the idea that the new replaces the old, that progress comes through renewal, not through conservatism.
The origin of his theory
With Peter Howitt, Aghion put this intuition into equations in A Model of Growth Through Creative Destruction (1992). Their model shows that companies at the technological frontier earn innovation annuities (profits linked to their advance) but that these rents should not last forever. Otherwise, new entrants would have no chance. This perpetual movement of successive innovators makes the economy dynamic in their opinion.
In this context, firms are heterogeneous: some innovate, others follow. Progress comes in waves: innovation → obsolescence → renewal. This is the core of the process of creative destruction that he describes. (see for example His Aghion courses at the Collège de France on creative destruction)
It's all a question of the right mix between incentives and competition
Aghion is not an ideologist: he knows that incentives can get out of hand. For him, the State must therefore act as a strategist, not as an “integral planner.” It recommends targeted incentives (research tax credits, selective grants, venture capital, etc.) to stimulate risk-taking, without encouraging monopolies. It warns against tipping over:
“Some 'superstar firms' risk dominating and stifling the entry of new innovators.”
In an innovation conference, this type of message always resonates strongly: it illustrates the challenge of protecting the ecosystem of emerging innovators. It also formalizes the relationship between competition and innovation: up to a certain threshold, competition stimulates innovation, but beyond that, it can become too brutal and discourage long-term effort (= the inverted U relationship).
Empiricism & validation in the field
For Aghion, theory only lives if it is confronted with data.
He observes the flows of creation and disappearance of companies, the mobility of capital between firms, and technological diffusion. He is interested in how institutional rigidities, regulations, and ownership structures affect a country's ability to sustain creative destruction.
For example, in The Power of Creative Destruction, he explains how technological revolutions can take time to produce macroscopic effects, but that they do not necessarily cause mass unemployment, contrary to popular belief.
In his interventions, he classically distinguishes between what is an “aid” (grant, direct support) and what is a tax break or advantage. Interesting as an approach to avoid confusion in public policy debates.
A public voice and a political vision
Beyond models, Aghion is a clearly committed intellectual actor.
He calls on Europe not to miss the technological shift, to structure a genuine innovation policy (European ARPA, financial ecosystems, venture capital markets, etc. and there is a lot to do!). And he criticizes regulatory blockages, fragmented markets, and the lack of an institutional framework favorable to innovation. He does not deprive himself of it in the press, for example here.
In his public interventions, he regularly recalls that innovation cannot be decreed: it depends on institutional architecture, incentives, and open competition. He therefore calls for fine reforms rather than grand speeches.
To go further: resources
- The Power of Creative Destruction — Aghion, Antonin & Bunel: contemporary synthesis of his thinking on innovation and future challenges
- The course”Creative destruction” from the Collège de France (PDF)
- The book The Economics of Growth (Aghion & Howitt) to understand the founding model
- Empirical work on the innovation/regulation/ownership relationship, accessible via RePEc or Google Scholar
- Recent publications (with Van Reenen, Bergeaud, etc.) on innovation and regulation
