Philippe Aghion

In the Aghion-Howitt model, firms invest in research to introduce technologies that make older products or processes obsolete. This Schumpeterian cycle raises productivity, but it also displaces incumbent firms and can create short-term losses for workers or owners tied to older technologies.

Aghion's research suggests that the relationship can resemble an inverted U: too little competition may let incumbents relax, while extreme competition can reduce the rewards from innovating. Firms near the technological frontier may innovate to escape close competitors, whereas lagging firms may respond differently.

Both approaches make technological progress an outcome of purposeful economic activity rather than an unexplained outside force. Aghion's Schumpeterian framework places greater emphasis on entrants replacing incumbents through creative destruction, while Romer's models prominently emphasize ideas, knowledge spillovers, and expanding varieties.

The framework supports combining research incentives with competition, education, access to finance, and policies that help workers move between firms. Protecting every incumbent can obstruct creative destruction, but poorly designed competition can also weaken firms' incentives to fund risky innovation.