This paper models a financially constrained entrepreneur and a deep-pocket incumbent developing an innovative product through strategic alliance, which generates externalities on the incumbent. We find that i) the main agency conflict in alliances is the free-riding problem between the two...

This paper models a financially constrained entrepreneur and a deep-pocket incumbent developing an innovative product through a strategic alliance. We find that i) the financial constraints of the entrepreneur can be tightened by an increase in his endowment or a reduction in agency conflicts,...