Coase's Penguin, or Linux and the Nature of the Firm
Yochai Benkler
For decades our understanding of economic production has been that individuals
order their productive activities in one of two ways: either as employees in
firms, following the directions of managers, or as individuals in markets,
following price signals. This dichotomy was first identified in the early work
of Nobel laureate Ronald Coase, and was developed most explicitly in the work of
neo-institutional economist Oliver Williamson. In the past three or four years,
public attention has focused on a fifteen-year-old social-economic phenomenon in
the software development world. This phenomenon, called free software or open
source software, involves thousands or even tens of thousands of programmers
contributing to large and small scale project, where the central organizing
principle is that the software remains free of most constraints on copying and
use common to proprietary materials. No one "owns" the software in the
traditional sense of being able to command how it is used or developed, or to
control its disposition. The result is the emergence of a vibrant, innovative
and productive collaboration, whose participants are not organized in firms and
do not choose their projects in response to price signals.
In this paper I explain that while free software is highly visible, it is in
fact only one example of a much broader social-economic phenomenon. I suggest
that we are seeing is the broad and deep emergence of a new, third mode of
production in the digitally networked environment. I call this mode
"commons-based peer-production," to distinguish it from the property- and
contract-based models of firms and markets. Its central characteristic is that
groups of individuals successfully collaborate on large-scale projects following
a diverse cluster of motivational drives and social signals, rather than either
market prices or managerial commands.
The paper also explains why this mode has systematic advantages over markets and
managerial hierarchies when the object of production is information or culture,
and where the capital investment necessary for production-computers and
communications capabilities-is widely distributed instead of concentrated. In
particular, this mode of production is better than firms and markets for two
reasons. First, it is better at identifying and assigning human capital to
information and cultural production processes. In this regard, peer-production
has an advantage in what I call "information opportunity cost." That is, it
loses less information about who the best person for a given job might be than
do either of the other two organizational modes. Second, there are substantial
increasing returns to allow very larger clusters of potential contributors to
interact with very large clusters of information resources in search of new
projects and collaboration enterprises. Removing property and contract as the
organizing principles of collaboration substantially reduces transaction costs
involved in allowing these large clusters of potential contributors to review
and select which resources to work on, for which projects, and with which
collaborators. This results in allocation gains, that increase more than
proportionately with the increase in the number of individuals and resources
that are part of the system. The article concludes with an overview of how these
models use a variety of technological and social strategies to overcome the
collective action problems usually solved in managerial and market-based systems
by property and contract.
http://www.benkler.org/CoasesPenguin.html
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