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The Political Economy of Open Source Software
Steven Weber
Working Paper 140
June 2000
I. The Analytic Problem of Open Source
Coca-Cola sells bottles of soda to consumers. Consumers drink the soda (or use it in any other way they like). Some consumers, out of morbid curiosity, may read the list of ingredients on the bottle. But that list of ingredients is generic. Coca-Cola has a proprietary 'formula' that it does not and will not release. The formula is the knowledge that makes it possible for Coke to combine sugar, water, and a few other readily available ingredients in particular proportions and produce something of great value. The bubbly stuff in your glass cannot be reverse-engineered into its constituent parts. You can buy it and you can drink it, but you can't understand it in a way that would empower you to reproduce it or improve upon it and distribute your improved cola drink to the rest of the world.
The economics of intellectual property rights provides a straightforward rationalization of why the Coca-Cola production 'regime' is organized in this way. The problem of intellectual property rights is about creating incentives for innovators. Patents, copyrights, licensing schemes and other means of 'protecting' knowledge assure that economic rents are created and that some proportion of those rents can be appropriated by the innovator. If that were not the case, a new and improved formula would immediately be available for free to anyone who chose to look at it. The person who invented that formula would have no claim on the knowledge or any part of the profits that might be made from selling drinks engineered from it. The system unravels, because that person no longer has any 'rational' incentive to innovate in the first place.
The production of computer software has typically been organized under a similar regime. You can buy Microsoft Windows and you can use it on your computer but you cannot reproduce it, modify it, improve it, and redistribute your own version to others. Copyright provides legal protections to these strictures, but there is an even more fundamental mechanism that stops you from doing this. Just as Coca-Cola does not release its formula, most software developers do not release their source code, the list of instructions in a programming language that comprise the recipe for the software. Source code is the essence of proprietary software. It is a trade secret. Proprietary source code is the fundamental reason why Microsoft can sell Windows for a non-zero price, and distribute some piece of the rents to the programmers who write the code -- and thus provide incentives for them to innovate.
Open Source software inverts this logic. The essence of open source software is that source code is 'free' -- that is -- open, public, non-proprietary. Open Source software is distributed with its source code. The Open Source Definition (which I discuss in greater detail later) has three essential features:
- It allows free re-distribution of the software without royalties or licensing fees to the author
- It requires that source code be distributed with the software or otherwise made available for no more than the cost of distribution
- It allows anyone to modify the software or derive other software from it, and to redistribute the modified software under the same terms.
There exist several hundred or perhaps thousands of open source 'projects', ranging from small utilities and device drivers to Sendmail (an e-mail transfer program that almost completely dominates its market) to WWW servers (Apache) and a full operating system -- Linux. These projects are driven forward by contributions of hundreds, sometimes thousands of developers, who work from around the world in a seemingly unorganized fashion, without direct pay or compensation for their contributions.
Full Text of The Political Economy of Open Source Software (PDF, 41pgs)
