This paper proposes a model of industrial innovation linked to financialliberalisation where agents are characterised by heterogeneous innovativeabilities. Individual researchers may either be employed by a large firm andwork together on the firm’s innovative project, or they may alternativelyset up an individual firm in order to commercialise their own innovation.The large firm’s hiring decisions and the individual researcher’s decisionto set up his own firm depends on the researcher’s innovative ability and onthe financial conditions. Financial liberalisation leading to a lower costof setting up a small firm will affect the size of the large firm andincrease the number of small technology firms. A drop in the cost ofstarting a small firm may increase income inequality.
