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

Опубликовано 6 сентября 2016, 18:10

We discuss the history of institutions for provision of public (open source) software, from the 1950s to the emergence of the modern open source software institutions in the mid 1990s. We explain the evolution of such institutions by considering the inefficiencies inherent in provisioning of software as an excludable good. Such inefficiencies arise first of all due to a hold-up problem created by transactions that do not give the buyer the ability to modify the software. We also argue that the nature of the production function of software makes software cheaper to develop when the code is open to end users. We use this framework to examine the institutions that emerged to capture the efficiency gains afforded by public software. We look in particular at how such institutions have created incentives that not only attract contributions from individual volunteers but have also lead to creation of open source products of tremendous commercial importance, which have come to dominate many segments of the software industry. Open source products now form the foundation of core infrastructure of sophisticated technology companies such as Amazon, Google, and Yahoo! and other.