The Nobel Prize in Economics Awarded for the Model of «Creative Destruction» 0 65

One half was awarded to Joel Mokyr (Northwestern University, Evanston, Illinois), and the other half jointly to Philippe Aghion (Collège de France and INSEAD, Paris; London School of Economics and Political Science) and Peter Howitt (Brown University, Providence, Rhode Island, USA).

According to the decision of the members of the Royal Swedish Academy of Sciences, they were honored for their "explanation of economic growth based on innovation."

As noted in a statement on the Nobel Committee's website, Joel Mokyr used historical sources to demonstrate the nature of sustainable economic growth. As he showed in his research, for innovations to follow one another, it is necessary to "not only know that something works but also to have a scientific explanation of why it is so."

"The latter was often absent before the Industrial Revolution, which hindered new discoveries and the emergence of new inventions. He (Mokyr) also emphasized the importance of a society's openness to new ideas and readiness for change," the statement said.

Philippe Aghion and Peter Howitt, who also studied the mechanisms of sustainable growth, built a mathematical model of so-called creative destruction in a 1992 paper. The essence of this model is that when a new and more advanced product enters the market, companies selling the old ones suffer losses. "Innovation represents something new and therefore creative. However, it is also destructive, as a company whose technologies become obsolete finds itself displaced," explained the Royal Swedish Academy of Sciences.

Thus, "creative destruction" generates conflicts. And, as this year's laureates show, there is a risk that "established companies" will block innovations to avoid being at a disadvantage.

"The work of the laureates demonstrates that economic growth cannot be taken for granted. We must support the mechanisms underlying creative destruction to avoid falling into stagnation," said John Hassler, chairman of the Prize Committee for Economic Sciences.