Innovation Financing and Use of Income Contingent Loans

Abstract

Innovation is the engine of growth in the modern knowledge economy. Yet market processes in relation to innovation have important limitations. In this paper the innovation role is defined, market flaws are dissected, the status of current innovation policy instruments is examined and a new way forward based on income contingent loans is proposed. Evidence is provided as to how such schemes can be designed, and how they are an unequivocal efficiency improvement over conventional instruments. Extension of the model to public-private partnership approaches is also considered to further enhance efficiency and effectiveness.