Coase’s Penguin, or Linux and the Nature of the Firm
- http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=4061&context=fss_papers (PDF)
This essay explains "why the Peer Production 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.”