NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Half a Century of Public Software Institutions: Open Source as a Solution to Hold-Up Problem

Michael Schwarz, Yuri Takhteyev

NBER Working Paper No. 14946
Issued in May 2009
NBER Program(s):   IO   PE   PR

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 sectors of the software industry (e.g., the top ten programming languages all have an open source implementation), while being almost none existent in some other sectors (none of the top ten computer games are open source). We then use our discussion of efficiency to examine the history of institutions for provision of public software from the early collaborative projects of the 1950s to the modern "open source" software institutions. We look at how such institutions have created a sustainable coalition for provision of software as a public good by organizing diverse individual incentives, both altruistic and profit-seeking, providing open source products of tremendous commercial importance, which have come to dominate certain segments of the software industry.

download in pdf format
   (512 K)

email paper

This paper is available as PDF (512 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14946

Published: Half a Century of Public Software Institutions: Open Source as a Solution to Hold-Up Problem MICHAEL SCHWARZ1, YURI TAKHTEYEV2 Article first published online: 19 JUL 2010 DOI: 10.1111/j.1467-9779.2010.01467.x

Users who downloaded this paper also downloaded these:
Lerner and Tirole w10956 The Economics of Technology Sharing: Open Source and Beyond
Lerner and Triole w7600 The Simple Economics of Open Source
Maurer and Scotchmer w12148 Open Source Software: The New Intellectual Property Paradigm
Lerner and Tirole w9363 The Scope of Open Source Licensing
Anderson and Coate w7513 Market Provision of Public Goods: The Case of Broadcasting
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us