Tirole on Open Source

Jean Tirole is the latest recipient of the Nobel prize in economics, as was announced Monday. For more background on his work, see NPR and the New Yorker. My favorite portion of Tirole’s work (and, admittedly, pretty much the only part I’ve read) is his work on open source software communities. Much of this is joint work with Josh Lerner. Below I share a few selections from his work that indicate the general theme.

open_sourceThere are two main economic puzzles to open source software. First, why would highly skilled workers who earn a substantial hourly wage contribute their time to developing a product they won’t directly sell (and how do they convince their employers, in some cases, to support this)? Second, given the scale of these projects, how do they self-govern to set priorities and direct effort?

The answer to the first question is a combination of personal reputation and the ability to develop complementary software (Lerner and Tirole, 2002, p. 215-217). Most software work is “closed source,” meaning others can see the finished product but not the underlying code. For software developers, having your code out in the open gives others (especially potential collaborators or employers) the chance to assess your abilities. This is important to ensure career mobility. Open source software is also a complement to personal or professional projects. When there are components that are common across many projects, such as an operating system (Linux) or web framework (Rails), it makes sense for many programmers to contribute their effort to build a better mousetrap. This shared component can then improve everyone’s future projects by saving them time or effort. The collaboration of many developers also helps to identify bugs that may not have been caught by any single individual. Some of Tirole’s earlier work on collective reputations is closely related, as their appears to be an “alumni effect” for developers who participated in successful projects.

Tirole and Lerner’s answer to the second question revolves around leadership. Leaders are often the founders of or early participants in the open software project. Their skills and early membership status instill trust. As the authors put it, other programmers “must believe that the leader’s objectives are sufficiently congruent with theirs and not polluted by ego-driven, commercial, or political biases. In the end, the leader’s recommendations are only meant to convey her information to the community of participants.” (Lerner and Tirole, 2002, p. 222) This relates to some of Tirole’s other work, with Roland Benabou, on informal laws and social norms.

Again, this is only a small portion of Tirole’s work, but I find it fascinating. There’s more on open source governance in the archives. This post on reputation in hacker culture or this one on the Ruby community are good places to start.