The Simple Economics of Open Source

Why in the world would anyone take the time to write complicated software programs for free?


It's a good question, one that has piqued the curiosity of a number of economists, who wonder what benefits, if any, lie behind the burgeoning "open source" movement in technology.


After all, outwardly the situation smells of economic anarchy. Where are the market forces, when thousands of talented programmers—and even many commercial firms—spend inordinate amounts of time writing and sharing computer source code: an activity that apparently gives the individuals and companies involved no pay-off, no reward?


Could it be driven, as some media reports have admiringly suggested, purely by intellectual fervor on the part of programmers, perhaps coupled with a noble desire to share and dispense knowledge to benefit mankind?


Not so fast, say HBS Professor Josh Lerner and his colleague Jean Tirole, an economist at the University of Toulouse and the Massachusetts Institute of Technology. In their new working paper, "The Simple Economics of Open Source," Lerner and Tirole make the case that an idealistic notion of programmer altruism only goes so far. After all, the pair argues, generosity and knowledge-bearing have not really been guiding factors in other industries: so why would they dominate the computer field?


Instead, they suggest, laboring on open source brings developers and companies specific, tangible and very favorable economic benefits: benefits that are sensible, potentially quite lucrative and, in a word, simple. Altruism is just a nice by-product.