

The Economics of Knowledge Sharing - avyfain
http://blogs.hbr.org/2014/10/the-economics-of-knowledge-sharing/

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nz
For anyone interested, here is a direct link[1] to the scientific background
to Tirole's 'Market Power and Regulation' ideas, which were kindly compiled by
the committee. Open source is first mentioned on page 27 (out of 54).

[1]: [http://www.nobelprize.org/nobel_prizes/economic-
sciences/lau...](http://www.nobelprize.org/nobel_prizes/economic-
sciences/laureates/2014/advanced-economicsciences2014.pdf)

From the paper:

Open-source software: The literature on patent races assumes that R&D
investments are driven by the traditional profit-motive. However, economists
are increasingly realizing that not all new technologies originate in this
way. An important example is Open Source Software (OSS), where programmers at
many different locations and organizations share code to develop new software.
This process was important in the development of the Internet, contributing
such software as TCP/IP, BIND, Perl, Sendmail, Linux, Mozilla and Apache. What
initially baffled economists was that OSS developers did not seem to benefit
financially from their efforts. OSS is, in effect, a public good, which raises
the question why OSS programmers contribute voluntarily, without pay, to the
public good. Lerner and Tirole (2002) argued that economic theory may, in
fact, be able to answer this question. Their main hypothesis is that software
developers have career concerns. Contributing to the OSS may be a credible
signal of one's programming ability, which may lead to job offers, shares in
commercial open source-based companies, or access to the venture-capital
market.35 Drawing on a previous literature on career concerns (e.g.,
Holmstrom, 1982), they argue that the signaling motive is stronger the more
visible is performance, the higher the impact of effort on performance, and
the more informative performance is about talent. They find support for the
signaling motive in four case studies (Apache, Linux, Perl and Sendmail).
Subsequent research also found support for Lerner and Tirole's (2002)
signaling theory, at least for some OSS projects (e.g., Hann, Roberts and
Slaughter, 2013, for Apache). However, programmers seem to contribute to OSS
for a variety of reasons, perhaps including altruism. A satisfactory
explanation of OSS development may require a mixture of signaling theory and
insights, like those of 2009 Economics Laureate Elinor Ostrom, into how
cooperative behavior can be supported by norms and other social mechanisms
(O'Mahony, 2003).

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nz
Having read the paper, and taking the time to think about the whole
'signaling' explanation for open source, I'd say that in addition to ego and
joy, signaling is a major motivator for contributing to open source software.
While many programmers may contribute to any arbitrary project because of
their interest or dependence on the software, the most effective way to signal
your skill as a developer would be to contribute to software that is either a)
used by the prospective employer to support their business, or b) developed by
the employer himself (likely to support their business).

However, this theory doesn't take into account that one may contribute to an
OSS project, because an employer is paying them to do this in the first place.
Both employers and employees participate in OSS. Employees want to demonstrate
their skill so that they would get employed, while employers want to
demonstrate their organization's engineering talent to attract even more
talent. The paper seems to assume that OSS signaling is simplex, whereas it is
actually duplex. But beyond signalling, an organization open sourcing software
can be seen as a way to encourage standardization of that software (Android,
WebKit, V8, and in the future maybe Dart) instead of a competitor's
potentially closed alternative (which might be more expensive to
deploy/port/debug and so on).

Sun Microsystems' open sourcing of Solars and JVM can be seen as an attempt
attract more talent to the company (which at that time was fairly unpopular,
especially when compared to Google which was an open source darling).

