Economics of Open Source Software ∗

A simple model of open source software (as typified by the Linux operating system) is presented. Individual user-programmers decide whether to invest their valuable time and effort to develop a software application that will become a public good if so developed. Open source code potentially allows the entire Internet community to use its combined programming knowledge, creativity and expertise. On the other hand, the lack of a profit motive can result in free riding by individuals and, consequently, unrealized developments. Both the level and distribution of open source development effort are generally inefficient. The benefits and drawbacks of open source versus profit-driven development are presented. The effect of changing the population size of user-programmers is considered; finite and asymptotic results are given. Whether the amount of development will increase when applications have a “modular structure” depends on whether the developer base exceeds a critical size or not. Explanations of several stylized facts about open source software development are given, including why certain useful programs don’t get written. Other issues are also explored. ∗This paper is an extension of a chapter from my 1999 M.I.T. Ph.D. dissertation. I thank Daron Acemoglu, Travis Broughton, Jonathan Dworak, Frank Fisher, David P. Myatt, two anonymous referees and a coeditor for helpful comments and advice. I especially thank Glenn Ellison for his extensive and concise remarks.