What?
Exploration of the economics of open-source software development.
Why?
Open-source software showed rapid diffusion, significant capital investment and introducing new organization structure.
- Many of the key aspects of the computer operating systems and the Internet were developed in academic settings such as Berkeley and mit during the 1960s and 1970s, as well as in central corporate research facilities where researchers had a great deal of autonomy (such as Bell Labs and Xerox’s Palo Alto Research Center).
- Richard Stallman introduced the Free Software Foundation in 1983, as well as the innovation of a licensing procedure: gpl a.k.a. “copyleft”. The contractual procedure distinguishes open source software with shareware (sharing compiled binaries but not source code) and public-domain software (where restrictions are put on subsequent user of the code).
The question posed (emphasis mine):
It is not initially clear how these claims relate to the traditional view of the innovative process in the economics literature. Why should thousands of top-notch programmers contribute freely to the provision of a public good? Any explanation based on altruism can only goes so far. While users in less developed countries undoubtedly benefit from access to free software, many beneficiaries are well-to-do individuals or Fortune 500 companies. Furthermore, altruism has not played a major role in other inustries, so it would have to be explained why individuals in the software industry are more altruistic than others.
How?
Analysis based on the labor economics framework, particularly the literature of career concern.
And?
Motivations
These two following motivation for open-source contributors are categorized as “signaling incentive” (see (Holmström 1999)):
- Future career prospects
- Peer recognition (“egoboo”)
As such, the distinctions are made for open-source contributors and proprietary software contributors: One generally gives more delayed payoffs and the latter more immediate payoffs. The immediate payoffs for commercial development stem from the fact that the proprietary nature of the code generate income, which makes it privately worthwhile for company to offer salaries. The old argument in economics is used here: The prospects of profit encourage investment.
In comparison, signaling incentives of the open-source contributors has its own advantage: Skills (and often leadership, for the project lead) can be directly observed by any outsider (information symmetricity); contributors are more flexible as to choose their working patterns, their projects and how they work on their projects.
review To read more on the alluni effect.
Key strategies for proprietary segment:
- They list people who developed their softwares
- They funds their complementary open-source projects (related: Gwern.net - Laws of Tech: Commoditize Your Complement)
- Promote the sharing of codes in their company
Also, a company will decide to open-source its products if they find that the net profit from one of their complementary is bigger that the loss of proprietary value the open-sourced product may bring about. Thus, this is often viable strategy for small company who can not directly compete with the leader in their segments.
Bibliography
Holmström, Bengt. 1999. “Managerial Incentive Problems: A Dynamic Perspective.” The Review of Economic Studies 66 (1):169–82. https://doi.org/10.1111/1467-937X.00083.
This post is in the collection of my public reading notes.