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«Coase’s Penguin, or, Linux and the Nature of the Firm Yochai Benkler∗ Abstract The emergence of GNU/Linux as a viable alternative to the Windows ...»

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Eric Raymond, The Cathedral and the Bazaar (1998) http://www.tuxedo.org/~esr/writings/cathedralbazaar/cathedral-bazaar/.

Bessen, supra.

COASE’S PENGUIN Oct. 2001 number of resources in a resource set open for any agent to work with. Markets and firms use property and contract to secure access to bounded sets of agents, resources, and projects, thereby reducing the uncertainty as to the likely effects of decisions by agents outside the sets on the productivity of the agents within the set. The permeability of the boundaries of these sets is limited by the costs of making decisions in a firm about adding or subtracting a marginal resource, agent, or product, and the transaction costs of doing any of these things through the market. Peer production relies on making an unbounded set of resources available to an unbounded set of agents, who can apply themselves towards an unbounded set of projects and outcomes. The variability in talent and other idiosyncratic characteristics of individuals suggests that any given resource will be more or less productively used by any given individual, and that the overall productivity of a set of agents and a set of resources will increase more than proportionately when the size of the sets increases towards completely unbounded availability to all agents of all resources for all projects.

The physical capital costs of sophisticated information and cultural production are declining dramatically. Communications systems are making globally distributed talent pools available for any given project while simultaneously reducing the distribution costs of both resources and products. Under these conditions, two factors of information production gain in salience—the first is a public good, the second a normal economic good. First are information input costs—the cost of using existing information—like an existing software platform that can be upgraded or customized or an existing database of news items that can be combined into many different commentaries. The actual marginal cost of these inputs is zero because of the nonrivalry of information, although the price at which they will be available is likely positive, with its precise magnitude a function of the intellectual property system in place and the elasticity of demand for a given input given substitutability with other information inputs. The second factor, which is the true economic good involved in information production (in the sense that it is both rival and excludable), is human capital. It is precisely under these conditions—where the other economic goods associated with the production of information—physical capital and communications costs—are low, that the mechanism for allocating human capital becomes central.

And it is precisely in the allocation of that factor that the advantage of peer production both as an information process and as an assignment process is salient.

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information if they do not then claim proprietary rights in the product of their labors. 11 In Part II I suggest that—consistent with the claims of those who have attempted to argue for the sustainability of open source development—the incentives problem is a trivial one once a sufficient number of contributors can be involved. The actual limitation on peer production is the capacity of a project to pool a sufficient number of contributors to make the incentives problem trivial. This means that the modularity of an information product and the granularity of its components are what determine the capacity of an information product to be produced on a peer production model. If the components are sufficiently small grained, and the cost of connecting people to projects sufficiently low thanks to efficient cheap network communications, the incentives necessary to bring people to contribute are very small. As a practical matter, given the diversity of motivations and personal valuations on the productive activity itself and on the likelihood of desirable consequences from participation, the incentives problem is trivial.

This leaves the organization problem—how to get all these potential contributors to work on a project together, how to integrate their contributions and control their quality—as the central limiting factor. The organization problems are solved in various forms. These include social organization—like peer review, technical solutions—such as automatic averaging out of outlying contributions, iterative peer production of the integration function itself—such as by developing an open source software solution for integrating contributions, or by a limited reintroduction of market-based and hierarchical mechanisms to produce integration.

I. Peer Production All Around

While open source software development has captured the attention and devotion of many, it is by no stretch of the imagination the first or most important instance of production by peers who interact and collaborate without being organized on either a market-based or a managerial/hierarchical model. Most important in this regard is the academic enterprise, and in particular science. Thousands of individuals make individual contributions to a body of knowledge, set up internal systems of quality control, and produce the core of our information and knowledge environment.

These individuals do not expect to exclude from their product anyone who does not pay for it, and for many of them the opportunity cost of participating in academic research, rather than applying themselves to commercial enterprise, carries a high economic price tag. In other words, individuals produce on a non proprietary basis, This has been the focus of a number of studies, including those of Raymond, supra, Josh Lerner & Jean Tirole, The Simple Economics of Open Source, (2000), http://www.people.hbs.edu/jlerner/simple.pdf;





Karim Lakhani & Eric von Hippel, How Open Source Software Works: Free User to User Assistance (2000), http://web.mit.edu/evhippel/www/opensource.PDF, and Moglen supra (grudgingly dealing with incentives, a question he deems a reflection of poor understanding of human creative motivation).

COASE’S PENGUIN Oct. 2001 and contribute their product to a knowledge “commons” that no one is understood as “owning,” and that anyone can, indeed is required by professional norms to, take and extend. We appropriate the value of our contributions using a variety of service-based rather than product-based models (teaching rather than book royalties) and grant funding from government and non-profit sources, as well as, at least as importantly, reputation and similar intangible—but immensely powerful—motivations embodied in prizes, titles etc. It is easy, though unjustifiable, in the excitement of the moment of transition to an information economy, to forget that information production is one area where we have always had a mixed system of commercial/proprietary and non proprietary peer production—not as a second best or a contingent remainder from the middle ages, but because at some things the non proprietary peer production system of the academic world is simply better.12 In one thing, however, academic peer production and commercial production are similar. Both are composed of people who are professional information producers. The individuals involved in production have to keep body and soul together from information production. However low the academic salary is, it must still be enough to permit one to devote most of one’s energies to academic work. The differences reside in the modes of appropriation and in the modes of organization—in particular how projects are identified and how individual effort is allocated to project.

Academics select their own projects, and contribute their work to a common pool that eventually comprises our knowledge of a subject matter, while non-academic producers will often be given their marching orders by managers, who themselves take their focus from market studies, and the product is then sold into the market for which it was produced.

Alongside the professional model, it is also important to recognize that we have always had nonprofessional information and cultural production on a non proprietary model. Individuals talking to each other are creating information goods, sometimes in the form of what we might call entertainment, and sometimes as a means for news distribution or commentary. Nonprofessional production has been immensely important in terms of each individual’s information environment. If one considers how much of the universe of communications one receives in a day comes from other individuals in one-to-one or small-scale interactions—such as email, lunch, or hallway conversations—the effect becomes tangible.

An early version of this position is Richard R. Nelson, The Simple Economics of Basic Scientific Research, 48 Journal of Political Economy 297-306 (June 1959); more recently one sees the work, for example, of Rebecca S. Eisenberg, Public Research and Private Development: Patents and Technology Transfer In Government-Sponsored Research, 82 Va. L. Rev. 1663, 1715-24 (1996). For a historical description of the role of market and non-market institutions in science see Paul A. David, From Market Magic to Calypso Science Policy (1997) (Stanford University Center for Economic Policy Research Pub.

No. 485).

COASE’S PENGUIN Oct. 2001 As computers become cheaper and as network connections become faster, cheaper, and more ubiquitous, we are seeing the phenomenon of nonprofessional peer production of information scale to much larger sizes, performing much more complex tasks than were in the past possible for, at least, nonprofessional production. To make this phenomenon more tangible, I will describe in this part a number of such enterprises, organized so as to demonstrate the feasibility of this approach throughout the information production and exchange chain. While it is possible to break an act of communication into finer-grained subcomponents,13 largely we see three distinct functions involved in the process. First, there is an initial utterance of a humanly meaningful statement. Writing an article or drawing a picture, whether done by a professional or an amateur, whether high quality or low, is such an action. Then there is a separate function of mapping the initial utterances on a knowledge map. In particular, an utterance must be understood as “relevant” in some sense and “credible.” “Relevant” is a subjective question of mapping an utterance on the conceptual map of a given user seeking information for a particular purpose defined by that individual. If I am interested in finding out about the political situation in Macedonia, a news report from Macedonia or Albania is relevant, even if sloppy, while a Disney cartoon is not, even if highly professionally rendered. Credibility is a question of quality by some objective measure that the individual adopts as appropriate for purposes of evaluating a given utterance. Again, the news report may be sloppy and not credible, while the Disney cartoon may be highly accredited as a cartoon. The distinction between the two is somewhat artificial, because very often the utility of a piece of information will be as much dependent on its credibility as on its content, and a New York Times story on the Balkans in general will likely be preferable to the excited gossip of a colleague specifically about Macedonia. I will therefore refer to “relevance/accreditation” as a single function for purposes of this discussion, keeping in mind that the two are complementary and not entirely separable functions that an individual requires as part of being able to use utterances that others have uttered in putting together the user’s understanding of the world. Finally, there is the function of distribution, or how one takes an utterance produced by one person and distributes it to other people who find it credible and relevant. In the mass media world, these functions were often, though by no means always, integrated. NBC news produced the utterances, by clearing them on the evening news gave them credibility, and distributed them simultaneously. What the Net is permitting is much greater disaggregation of these functions, and so this part will proceed to describe how each component of this information production chain is being produced on a peer-based model on the Net for certain information and cultural goods other than software.

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