Opening the Code: How Open Is Optimal?

Recent developments have challenged one prevailing interpretation of the idea that proprietary systems, enshrined in copyright, create the greatest value. The challenge appears at one level among economic strategists who assert that the greatest value in information goods is not created by the strongest and most restrictive intellectual property protection and in another form by the proponents of Open Source Software who argue for value created by peer review and openly modifiable, shared code. We articulate a balance of incentives and openness to promote both the creation of new products and the network externality benefits from open access. We consider the welfare of consumers and producers to show that environmental parameters such as the size of the market, the network effects, and the locus of innovation can affect the optimal choice of time to release and degree of openness