Nobel Prize in Economic Sciences 2025
The Nobel Prize in Economic Sciences in the year 2025 was awarded jointly to Joel Mokyr, Philippe Aghion and Peter Howitt. The academy recognised their contributions for their work on how technological progress and ‘creative destruction’ drive long-term prosperity.
Joel Mokyr was awarded the prize for his work on investigating the historical determinants that caused sustained economic growth and the emergence of what he calls ‘useful knowledge’ as an essential prerequisite for the continuous technological progress behind the exponential growth that started during the 18th century. Mokyr is widely known as an economic historian, who has set out to explain which cultural and societal mechanisms are responsible for the self-generating process that led to continuous economic growth during the last two centuries, which he mainly attributes to technological progress. According to him, the prominent driving force behind growth before the mid-1700s were institutional changes such as enforceable contracts, credit and commercial relations which helped expand wealth and made resource allocation more efficient. Technological progress, on the other hand, started playing a more important role in economic growth during the late eighteenth century, with the emergence of what he calls ‘useful knowledge’, attributing its rise to the cultural and societal changes that accompanied the period of enlightenment in Europe.
Another important aspect that Mokyr stresses is that the cost to access knowledge has fundamentally changed during the eighteenth century. He stipulates that the decrease in the cost to access knowledge is owed to the scientific method that developed during the Age of Enlightenment which made knowledge increasingly non-proprietary, turning it into a public good that is communicated freely rather than being confined to secrecy and exclusivity as was the case previously. Additionally, newly established institutions during that time, such as The Royal Society or The Republic of Letters, made knowledge networking across different geographical regions and social strata more common.
Mokyr goes on to categorize two types of ‘useful knowledge’; propositional knowledge and prescriptive knowledge. Propositional knowledge is knowing “what”, and includes observations, classifications and measurements of natural phenomena and the establishment of regularities and principles (natural laws) that explain them. Prescriptive knowledge, on the other hand, is knowing “how”; it is instructional knowledge, or ‘techniques’ such as building or designing.
In essence, it is the free flow of knowledge between holders of propositional knowledge and prescriptive knowledge that accelerated technological progress and economic growth to the degree witnessed during the last two centuries. Specifically, the exchange of knowledge between holders of practical and theoretical knowledge created a feedback loop where, on the one hand, new scientific discoveries help create new technologies and on the other, new technologies provide instruments with which to arrive to new scientific insights. Examples include the utilization of theoretical knowledge of atmospheric pressure and vacuums to create the steam engine and the utilization of practical knowledge of lens curving in microscopes that helped establish bacteriology.
In addition to the emergence of useful knowledge and the free flow of it between different milieus, Mokyr identifies another important contributing factor for technological progress pertaining to the process of Creative Destruction and its perception within societies. Creative Destruction, a term first introduced by Joseph Schumpeter, describes how the creation of new innovative technologies inevitably culminates in the destruction and obsolescence of older technologies within the same industry. By its nature, Mokyr argues, the process of Creative Destruction created an antagonistic relationship between the innovators and the people whose assets were threatened by new innovations, explaining why throughout history new innovations were met with heavy resistance. Only through the introduction of institutional safety nets during the industrial revolution was it possible to protect those introducing new innovations and those being subject to their destructive forces, thereby overcoming resistance against innovation.
The second half of the Nobel Prize was awarded to Aghion and Howitt for their work which primarily focuses on the process of ‘creative destruction’ and its role in the sustained economic growth and technological progress of modern times. Despite the fact that Aghion and Howitt add upon a well-established body of literature that ties technological progress to both economic growth and profit motivated decisions, their unique approach of mathematically modelling the process of creative destruction is what made their work stand out as it provides a more robust explanation for the effect of innovative new technologies as both an additive and disruptive force in the market.
On the firm level, creative destruction works according to Aghion and Howitt as follows; if a firm succeeds in developing a new technology that improves the production process and obtains patents related to that innovative new technology, it acquires a monopolistic position in the industry it operates in. This monopolistic position allows the firm to outcompete other firms in the same industry and acquire their market share, leaving other firms less viable and more susceptible to Market Exit. This dynamic creates two counteracting incentives; the first one is that the profit generated by acquiring a monopolistic position, acts as an incentive for firms to engage in Research and Development (R&D) and increase overall innovation. The second incentive that negates it, is called “technology spillover”. It happens when innovation produces useful knowledge that other researchers can use to create new innovations with which they can threaten the monopolistic position of the original innovator. These two counteracting forces play a role in whether innovation is above or below the optimum for a given society. While innovation is cumulative and always beneficial from the perspective of general society, firms have a more ambiguous relationship with innovation because of the “technology spillover” risks associated with R&D spending and innovation associated firm turnover rates which complicate the relationship between innovation and growth.
Based on the dynamic between monopolistic profits and technology spillover, Aghion and Howitt show how the effect of ‘creative destruction’ and economic growth are able to influence each other, thus making them applicable to a general equilibrium model. For example, by determining which degree of competition and patent protection in innovative industries is best for growth. Or by studying the effects of innovation-based growth on the rates of job creation and job destruction within an economy, thereby estimating its relationship with general unemployment levels. In conclusion, Aghion and Howitt’s modelling of creative destruction provides an effective tool, with which to guide economic policy making, to achieve appropriate growth rates by providing the right legal, political and institutional guidelines that facilitate the creative force of innovation without its destructive force being a perceived as a threat for investment.
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Mokyr, J. (2000). Knowledge, Technology and Economic Growth During the Industrial Revolution. Retrieved from https://faculty.wcas.northwestern.edu/jmokyr/Groningen.pdf
Mokyr, J. (2002). The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton University Press.
Mokyr, J. (2005). The Intellectual Origins of Modern Economic Growth. Journal of Economic History, 285 - 351.
Mokyr, J. (2025). Culture Versus Institutions in the Great Enrichment. In Menard, & Shirley, Handbook of New Institutional Economics. Springer.
NobelPrize.org. (2026, April 27). Scientific background to the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025. Retrieved from https://www.nobelprize.org/prizes/economic-sciences/2025/advanced-information/