Open-Source Models in Economics

From Economist’s View:

Open-Source Models in Economics

From Wikipedia, which seemed appropriate for this post, a definition and an English lesson:

Open source denotes that the origins of a product are publicly accessible in part or in whole. When used as an adjective, the term is hyphenated: “Apache is open-source software.” When used as a noun, there is no hyphen: “Netscape released its Navigator source code as open source.”

Will the same model work in economics?

How about some economic model to explain the open-source movement itself?   Here are two proposals:

Open-source software development as a signal in labor market

Back in 1973, Michael Spence showed that under certain conditions, well-informed agents can improve their market outcome by signaling their private information to poorly informed agents (this insight earned him the 2001 Nobel prize in economics). Applied to the open-source software development, this can mean that participation in such a project can be a singal to a potential employer showing that an applicant without an employment record may nevertheless possess valuable development skills, which may include version control, managing a geographically dispersed development team, or whatever else a particular employer is looking for.

The value of such a signal should be the greatest in a tight job market, when employers are cost-conscious and applicants are numerous. Acquiring the experience, on the other hand, is the easiest while in school (quite a few open-source pursuits grew out of term projects and dissertations). Hence, a testable prediction: open-source development should be concentrated in places where tight job market (and especially high youth unemployment) coexists with affordable technical education/training (some of which, in turn, may be youth unemployment in disgiuse). Anecdotally, this sounds plausible. Finland, for example, is home to both Linus Torvalds and Monty Widenius; neither lives there anymore…

Open-source software development as an option on related business

If you believe that giving away a piece of software can increase your chances of being paid for related services, the cost of developing the software can be thought of as an option on service revenues. Given a high degree of uncertainty surrounding those would-be service revenues, the option can be quite valuable…

The problem, of course, is that those need to be tested… 🙂

This entry was posted in Economics. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *