Open Source - Complexity, Cooperation and Credits

Open Source  Complexity, Cooperation and Credits∗ Matthias Bärwol June 22, 2006 Abstract Apart from the commonly cited reasons for the success of open source  namely the institutional framework comprising copyright based per missive licensing, the availability of source code, and some social norms that seem to guide much activity  there are two less often cited yet profound reasons for the viability of open source: rst, the impossibil ity of drawing complete contracts over both open source development and licensing, and, second, the relative eciency of a non-monetary accounting of credits in such circumstances. 1 Introduction From what we have seen thus far in the series of lectures we know that good governance creates an important framework for the progress and viability of a society (Lutterbeck 2006). In fact good governance is a more important prerequisite for economic welfare than strictly market conforming institu tions alone (Wagener 2004). This observation is all the more important as an unfettered belief in market forces and market forces alone shapes much of the discussion about the proper role of politics in our society. While good governance is important on a macro level with regard to the society as a whole, it is no doubt important on a rm level, too. Malone (2004) notes that the Taylorian vision of rms as ecient command-and-control structures is no longer tenable: In the old world of large-scale, mostly routine production, tak ing maximum advantage of everyone's intelligence and creativity wasn't critical, and the top-down, command-and-control manage ment style was usually quite eective. But as organizations be come more decentralized, as knowledge work comes to dominate ∗ Part of the lecture notes for the summer 2006 course "`Information Rules 2"', at department "`Informatik und Gesellschaft"', Technische Universität Berlin 1 the economy, and as innovation becomes increasingly important, taking advantage of people's true intelligence and creativity will become one of the most critical capabilities of successful busi nesses. (p. 153) For the software industry the problem alluded to by Malone is particu larly pronounced: software is a most complex good, there are severe limits to the rationality of the players involved, thus incomplete contracts are in evitable. And due to the public good nature of software (non-rival, and due to zero duplication costs eectively inexhaustible, and non-excludable) there is a structural conict between the ends of private parties involved on the supply side and those on the demand side. Open Source has emerged as a very promising approach to the prob lems inherent in software production and dissemination (Bessen 2001; Assay 2005; Gehring 2005) and may guide the way toward better software on a broad scale. This paper shall proceed as follows. First, we look briey at the institutions that have come to govern much of the current activities con cerned with open source. Second, we adress the question of why private parties choose to commit substantial resources to open source development that inevitably benets third parties without direct compensation. 2 Institutions of Open Source The single most important institution, the rule that is the most binding and enforcable of all, is the chosen licence for a given open source software. 1 In 2 order to qualify for an approval by the Open Source Initiative a licence will have to meet a number of criteria: 3 ˆ There must be no restrictions on redistribution. ˆ There must be source code available with the softare. ˆ Modications and derived works must be allowed to be implemented and redistributed. 1 I do not intend to elaborate too extensively on the institutions of open source. Refer to Gehring (2005) for an introductory account of open source institutions. The notion of insti tutions is captured neatly by Ostrom (2005): Institutional rules are often self-consciously crafted by individuals to change the structure of repetitive situations that they themselves face in an attempt to improve the outcomes that they achieve (p. 18). 2 The Open Source Initiative (www.opensource.org) was founded by Eric S. Raymond who has been a central gure in the highly successful late 1990s eorts of gaining more recognition in the business community for the merits of a movement then called "`free software"'. 3 For the detailed list of criteria see: http://opensource.org/docs/definition.php. 2 ˆ There must be no discrimination against persons, elds of endevour, applications with other software or technology. The legal validity of licences following such standards is widely accepted today. A number of court cases have enforced vital provisions of open source 4 Hence, licences such as the popular GNU General Public Licence licences. 5 6 (GPL) and the Berkeley Software Distribution Licence (BSD) are eective means of enforcing a basic set of rules for open source. The licencing of open source software eects two institutions that coin cide neatly with the inherent characteristics of digital information goods: availability of source code and unfettered freedom to copy, modify and redis tribute. This in turn entails eectively zero procurement costs and thus a socially optimal distribution of software. Any positive utility on the demand side will be satised, and there is no welfare loss due to monopoly pricing beyond marginal cost (Gehring 2005). In sum, in todays era of broadband it is pretty much an inevitable rule that open source software is practically available free of any charge. Selling shiny boxes with open source software is not a viable business model anymore. Beyond those rather obvious institutions are those "`soft institutions"' that require a more elaborate treatment and are prone to misjudgment and sustained debatte. Sure, there may be said to be social norms of voluntary cooperation and according punishment of non-contributors that guide some of the activities (Osterloh et al. 2004) but such approaches fail to explain why predominantly extrinsicly motivated parties such as modern corporations would want to join such eorts. To put it in economic terms: why not realise gains from trade where they occur? Any serious approach to describing the motivations behind open source must duly account for this question. 3 The Motivation Puzzle There is a great wealth of inquiries into the motivations of open source con tributors (Lerner and Tirole 2000; Ghosh et al. 2002; Osterloh et al. 2004; Hetmank 2005; Bärwol 2006; Priddat 2006). Thus we know that most con tributors do benet from their eorts in one way or another. Of course, it is circular and thus very much unscientic to state that the individual utility makes the eorts worthwhile if we include all sorts of untestable utilities such as joy and fulllment. However, Hars and Ou (2001) have noted that the rationality thesis holds even if we dispense with such evasive utilities: the tangible individual utility coincides strongly with the eorts employed. 4 See e. g. Metzger (2004) and Ebinger (2005). 5 http://www.gnu.org/copyleft/gpl.html. 6 The BSD licence is the second most important licence behind the GPL. It does allow for modications but does not require one to distribute the modied source code. It is thus more suitable for commercial uses of open source software. 3 Those developers whose contributions are most valuable either get payed outright by their employers or benet indirectly from the sale of complemen tary assets such as services and customisation. They also create a strong signal for prospective employers that may be translated directly into current benets (Lerner and Tirole 2000). The same holds for commercial entities who may reasonably be assumed to behave mostly rational. A number of those create substantial revenues from selling services and products related to their often heavy involvement in open source software projects (Bärwol 2006). However, while we see private parties generating sucient benet to mo tivate their contributions to open source we still do not know why they do not prefer to realise in money terms the gains from trade they give rise to. The following sections put forward a number of approaches to explain for this. 4 Complexity and Incomplete Contracts Bessen (2005) makes an important observation about the edge that open source has over proprietary software: it provides a means of coping with the diculties of contracting over the complexity of software. Others have pointed out that there may be benets from adopting an open source soft ware development model due to the benets from openness and redundancy (Benkler 2002; Hippel 2005). However, such approaches do not conclusively answer the question why extrinsicly motivated agents choose to let go of their assets.