Effort Trading

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See also: Effort-sharing Systems


Cooperation through effort trading

“More typically, one hears the following kind of story: markets are good at exchanging products for compensation, whereas firms are good at exchanging effort for compensation. The economics of organization can be understood from this perspective as a set of stories about why it is often costly to cooperate by trading products and often necessary to cooperate by trading effort. Ever since Coase (1937), it has been more-or-less taken for granted that the only way to trade effort is through an employment contract: I pay for your time and the right to direct your effort within agreed limits (Simon 1951). In other words, the only way to trade effort is by setting up a firm. Perhaps the most intriguing aspect of the open-source model is that it flies in the face of this assumption: under the right circumstances, it is possible to cooperate spontaneously on the effort margin, not just the product margin.

Rather than giving up their decision rights to others, open-source collaborators combine effort “voluntarily.” Voluntarily here means not that the collaborators do not receive pecuniary compensation (though that may often be true) but rather that the collaborators choose their own tasks. Assignment of individuals to tasks – and, to an extent we will explore, even the overall design of the division of labor itself – arises from these voluntary choices, in much the same way that assignment of sellers to products in a classic market arises from self-selection." (http://web.uconn.edu/ciom/Open1C.pdf)

Christian Siefkes on why the concept of effort trading may be misleading

"I think it’s a misnomer for the practices which I describe more aptly as “effort sharing”. Evidently, nothing is traded within open-source/peer-production projects, hence the term “effort trading” doesn’t make sense.

I guess that’s another instance of the misanalysis we’ve recently seen on the Oekonux list: if you have the preconceived notion that all human interactions are “trading”, that naturally you will apply this term to all human interactions, whether appropriate or not. It’s like Patrick Anderson’s sad (und usually wrong) assumption that lovers are “trading” with each other. I would strongly advise against using the term “effort trading”, since it gives people an utterly wrong picture of what is actually going on in free software and other peer production projects." (email August 2008)


"Article: Of Hackers and Hairdressers: Modularity and the Organizational Economics of Open-source Collaboration. By Richard N. Langlois (The University of Connecticut, [email protected]) and Giampaolo Garzarelli (Università degli Studi di Roma, [email protected]). Journal Industry & Innovation, Volume 15 Issue 2 2008

URL = http://web.uconn.edu/ciom/Open1C.pdf (2005 draft version)


Nothing is traded within open-source/peer-production projects. Therefore, the term Effort Sharing is more appropriate to describe this kind of cooperation.

More Information

  1. Effort-sharing Systems