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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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The first thing to see from the preceding six paragraphs is that provisioning integration by permitting the integrator to be the residual owner (in effect, to “hire” the contributors and act as the entrepreneur) presents substantial problems for the motivation to provision in a peer-based production model—both intrinsic and extrinsic motivation. Appropriation may so affect motivation to participate that the residual owner will have to resort to market- and hierarchy-based organization of the whole production effort. Second, property rights in information are always in some measure inefficient. Creating full property rights in any single actor whose contribution is only a fraction of the overall investment in the product is even less justifiable than doing so for a person who invests all of the production costs. Third, and related, integration is quite possibly, particularly with the introduction of software-based management of the communications and to some extent the integration of effort, a low-cost activity. To the extent that this is so, even though integration may require some hierarchy, or some market-based provisioning, it is a function that can nonetheless be sustained on low returns—be it by volunteers, like those who run integration of code into Linux, by government agencies, like NASA clickworkers, or by firms that appropriate the value they add through integration by means less protected from competition than intellectual property rights-based business models.

The cost of integration—and hence the extent to which it is a limit on the prevalence of peer production—can be substantially reduced by both automation and the introduction of an iterative process of peer production of integration itself. First, integration could be a relatively automated process for some products. NASA clickworkers’ use of automated collation of markings and averaging out of deviations is an example, as are many of the attributes of Slashdot. Second, the integration function itself can be peer produced. Again with Slashdot, the software that provides important integration functions is itself an open-source project—in other words, peerproduced. The peer review of the peer reviewers—the moderators—is again distributed, so that 90% of registered users can review the moderators, who in turn review the contributors. As peer production is iteratively introduced to solve a greater portion of the integration function, the residual investment in integration that might require some other centralized provisioning becomes a progressively smaller Katie Hafner, Physics on the Web Is Putting Science Journals on the Line, NYT April 21, 1998 Sec. F.

p. 3, col 1.

Harold Varmus, E-BIOMED: A Proposal for Electronic Publications in the Biomedical Sciences (1999) http://www.nih.gov/about/director/pubmedcentral/ebiomedarch.htm COASE’S PENGUIN Oct. 2001 investment, one capable of being carried on by volunteers or by firms that need not appropriate anything approaching the full value of the product.59 Moreover, integration, not only or even primarily integration into a general product but integration as a specific customization for specific users, could also provide an opportunity for cooperative appropriation. 60 There are no models for this yet, but the idea is that many peers will be admitted to something that is more akin to a common property regime than a commons, probably on the basis of reputation in contributing to the commons, and these groups would develop a system for receiving and disseminating service/customization projects (if it is a software project) or other information production processes. This would not necessarily work for all information production, but it could work in some. The idea is that the indirect appropriation itself would be organized on a peer model, so that reputation would lead not to being hired as an employee by a hierarchical firm, but would instead be performed by a cooperative, managed and “owned” by its participants. Just as in the case of Slashdot, some mechanism for assuring quality of work in the products would be necessary, but it would be achievable on a distributed, rather than a hierarchical model, with some tracking of individual contribution to any given project (or some other mechanism for distribution of revenues). The idea here would be to provide a peer-based model for allowing contributors to share the benefits of large-scale service projects, rather than relegating them to individual appropriation based on whatever comes down the pike.

The extent to which integration can be provided in a manner that does not require appropriation by the integrator is the third limiting factor—in addition to modularity and granularity of components of the product—on whether or not a given type of information good can be produced on a peer production model. The extent to which it is an efficient limit depends on how sensitive a project is to integration, and how well integration can be performed using technology, iterative peer production, social norms, or non-appropriating market or hierarchical mechanisms.

Boyle focuses on this characteristic as the most interesting and potentially important solution. See Boyle, Second Enclosure Movement, supra.

I owe the idea of cooperative appropriation to an enormously productive conversation with David Johnson. It was his idea that the peer production model can be combined with the producers’ cooperative model to provide a mechanism of appropriation that would give contributors to peer production processes a more direct mechanism for keeping body and soul together while contributing, rather than simply awaiting for reputation gains to be translated into a contract with a company.



In this paper I suggest that peer production of information is a phenomenon of much broader economic implications for information production than thinking of free software alone would suggest. I describe peer production common enterprises occurring throughout the value chain of information production on the Net, from content production, through relevance and accreditation, and to distribution. I also suggest that peer production has a systematic advantage over markets and firms in matching the best available human capital to the best available information inputs to create the most desired information products. The paper suggests that if peer production has a sufficient advantage in terms of its capacity to process information about who the best person is for a given information production job over firm and market based mechanisms to outweigh the costs of coordination, then peer production will outperform firms and markets.

I suggest that peer production of information is emerging because the declining price of physical capital involved in information production, and the declining price of communications lower the cost of peer production, and make human capital the primary involved economic good. This both lowers the cost of coordination and increases the importance of the factor at which peer production has a relative advantage—identifying the best available human capital for a job in very refined increments. If this is true it would have a number of implications both for firms seeking to structure a business model for the Net, and for governments seeking to capitalize on the Net to become more innovative and productive.

For academics, peer production provides a rich area for new research. Peer production, like the Net, is just emerging. While there are some studies of peerproduced software, there is little by way of systematic research into peer production processes more generally. There is much room for theoretical work on why they work, what are potential pitfalls, and what are solutions that in principle and in practice can be adopted. The role of norms, the role of technology, and the interaction between volunteerism and commercial gain in shaping the motivation and organization of peer production are also important areas of research. Qualitative and quantitative studies of the importance of peer production in the overall information economy, and in particular the Internet-based information economy would provide a better picture of just how central or peripheral a phenomenon this is.

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production, and performing if necessary some of the integration functions. Firms that adopt this model, however, will not be able to count on appropriating the end product directly, because the threat of appropriation will largely dissipate motivations for participation. Indeed, the capacity of a firm to commit credibly not to appropriate the joint project will be crucial to its success in building a successful business model alongside a peer production process. This would require specific licenses that secure access to the work over time to contributors and all. It would also require a business model that depends on indirect appropriation of the benefits of the product.61 Selling products or services, for which availability of the peer-produced product increases demand, as in the case of IBM servers that run Linux and Apache software, could do this. Conversely, firms that benefit on the supply side from access to certain types of information can capitalize on peer production processes to provide that input cheaply and efficiently, while gaining the firm-specific human capital to optimizing their product to fit the information. Again, IBM’s investment in engineers who participate in writing open source software releases it from reliance on proprietary software owned by other firms, thereby creating supply side economies to its support of peer production of software. Similarly, NASA’s utilization of peer production saves on its costs of mapping Mars craters. Another option is sale of the tools of peer production itself, for example, the software and access to a massive multiplayer online game like Ultima Online.

For regulators, the implications are quite significant. In particular, the current heavy focus on strengthening intellectual property rights is exactly the wrong approach to increasing growth through innovation and information production if having a robust peer production sector is important to an economy’s capacity to tap its human capital efficiently. Strong intellectual property rights, in particular rights to control creative utilization of existing information, harm peer production by raising the cost of access to existing information resources as input. This limits the capacity of the hundreds or thousands of potential contributors from considering what could be done with a given input, and applying themselves to it without violating the rights of the owner of the information input. This does not mean that intellectual property rights are all bad. But we have known for decades that intellectual property entails systematic inefficiencies as a solution to the problem of private provisioning of the public good called information. The emergence of commons-based peer production adds a new source of inefficiency.

The strength of peer production is in matching human capital to information inputs to produce new information goods. Strong intellectual property rights inefficiently shrink the universe of existing information inputs that could be subjected For a general mapping of indirect appropriation mechanisms see Yochai Benkler, Intellectual Property and the Organization of Information Production, forthcoming Int’l J. L. & Ec., 2002, http://www.law.nyu.edu/benklery/IP&Organization.pdf.

COASE’S PENGUIN Oct. 2001 to this process of matching human capital. Instead, owned inputs will be limited to human capital with which the owner of the input has a contractual relationship.

Moreover, the entire universe of peer-produced information gains no benefit from strong intellectual property rights. Since the core of commons-based peer production is provisioning without direct appropriation, and since indirect appropriation—be it intrinsic gains from participation, or indirect extrinsic gains of reputation, human capital, serving associated demand, etc.—does not rely on control of the information, but on its widest possible availability, intellectual property offers no gain, and only loss, to peer production. While it is true that free software currently uses copyrightbased licensing to prevent certain kinds of defection from peer production processes, the same protection from defection could be provided by creating a public mechanism for contributing one’s work in a way that makes it unsusceptible to downstream appropriation—a conservancy of sorts. Regulators concerned with fostering innovation may well better spend their efforts on providing the institutional tools that will enable thousands of people to collaborate without appropriating the joint product, and making the public good of information they produce publicly available, than spending their efforts as they now do, increasing the scope and sophistication of the mechanisms for private appropriation of this public good.

That we cannot fully understand a phenomenon does not mean that it does not exist. That a seemingly growing phenomenon refuses to fit our settled perceptions of how people behave and how economic growth occurs counsels closer attention, not studied indifference and ignorance. Peer production presents a fascinating phenomenon that could allow us to tap unknown reserves of human creative effort. It is of central importance to policy debates today that we not squelch it, or, more likely, move its benefits to economies that do appreciate it and create the institutional conditions needed for it to flourish.

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