Does the “New Economy” Change the Frontiers of the Large Corporation?

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