NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Yuri Takhteyev

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Working Papers

May 2009Half a Century of Public Software Institutions: Open Source as a Solution to Hold-Up Problem
with Michael Schwarz: w14946
We argue that the intrinsic inefficiency of proprietary software has historically created a space for alternative institutions that provide software as a public good. We discuss several sources of such inefficiency, focusing on one that has not been described in the literature: the underinvestment due to fear of holdup. An inefficient holdup occurs when a user of software must make complementary investments, when the return on such investments depends on future cooperation of the software vendor, and when contracting about a future relationship with the software vendor is not feasible. We also consider how the nature of the production function of software makes software cheaper to develop when the code is open to the end users. Our framework explains why open source dominates certain secto...

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