Researcher–Entrepreneur Relationship and Performance of Innovative Startups

ABSTRACT Many innovative startups are joint ventures between researchers and entrepreneurs, who collaborate in R&D and product commercialization. Government policies such as grants, subsidies, and patent licensing fees act as Pigouvian subsidies, incentivizing R&D by bridging the gap between the social and private returns of innovation. However, these subsidies may inadvertently strengthen the researcher's bargaining power within the researcher–entrepreneur relationship, leading to reduced research effort and skewed equity allocation that can undermine startup performance. Our findings suggest that addressing both external market failures and internal researcher–entrepreneur frictions requires a comprehensive policy portfolio. Conventional Pigouvian subsidies to innovation must be complemented with policies on startup governance and the entrepreneur labor market.