Innovation eco-systems and the Risk-Reward Nexus: an evolutionary account

The aim of this report is to study the relation between finance, innovation and inequality, focusing on the role of different actors in financing innovation and their share in the profit that results from an average of successful and unsuccessful projects. Based on a set of metrics for the distribution of risk taking and profit sharing in the innovation process, this report compares different types of innovation ‘eco-systems’ through an agent-based evolutionary simulation model. On one extreme, innovation investment relies (almost) exclusively on private finance. On the other, innovation relies (mainly) on public investment. By devising alternative parametric scenarios we analyse outcomes under alternative levels of risk, sketching stylised dynamics related to narratives behind actual innovation processes.