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 in-dividuals and, consequently, unrealized developments. Both the level and distribution of open source development effort are generally ineffi-cient. 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 appli-cations 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 cer-tain 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. My-att, two anonymous referees and a coeditor for helpful comments and advice. I especially thank Glenn Ellison for his extensive and concise remarks.