Open Source Software and the Private-Collective Innovation Model

Article: Open Source Software and the “Private-Collective” Innovation Model: Issues for Organization Science. By Eric von Hippel and Georg von Krogh. Organization Science/Vol. 14, No. 2, March–April 2003

URL = http://opensource.mit.edu/papers/hippelkrogh.pdf

Abstract

"Currently, two models of innovation are prevalent in organization science. The “private investment” model assumes returns to the innovator result from private goods and efficient regimes of intellectual property protection. The “collective action” model assumes that under conditions of market failure, innovators collaborate in order to produce a public good. The phenomenon of open source software development shows that users program to solve their own as well as shared technical problems, and freely reveal their innovations without appropriating private returns from selling the software. In this paper, we propose that open source software development is an exemplar of a compound “private-collective” model of innovation that contains elements of both the private investment and the collective action models and can offer society the “best of both worlds” under many conditions. We describe a new set of research questions this model raises for scholars in organization science. We offer some details regarding the types of data available for open source projects in order to ease access for researchers who are unfamiliar with these, and also offer some advice on conducting empirical studies on open source software development processes."

Excerpts

"Society has a vital interest in encouraging and rewarding innovation. Presently, there are two major models characterizing how this may be done. The first, the “private investment” model, assumes that innovation will be supported by private investment and that private returns can be appropriated from such investments (Demsetz 1967). To encourage private investment in innovation, society grants innovators some limited rights to the innovations they generate via intellectual property law mechanisms such as patents, copyrights, and trade secrets. These rights, in turn, assist innovators in getting private returns from their innovation-related investments (Arrow 1962, Liebeskind 1996, Dam 1995).

In the private investment model, any free revealing or uncompensated “spillover” of proprietary knowledge developed by private investment will reduce the innovator’s profits from its investment. It is therefore assumed that innovators will avoid such spillovers to the extent possible—although they will occur nonetheless (Audretsch and Feldman 1996, Audretsch and Stephan 1999, Harhoff et al. 2000). At the same time, the monopoly control that society grants to innovators under the private incentive model and the private profits they reap represent a loss to society relative to the free and unfettered use by all of the knowledge that the innovators have created. Society elects to suffer this social loss in order to increase innovators’ incentives to invest in the creation of new knowledge.

The second major model for inducing innovation is termed the collective action model. This model applies to the provision of public goods, where a public good is defined by its nonexcludability and nonrivalry: If any user consumes it, it cannot be feasibly withheld from other users (Olson 1967, p. 14). The collective action model operates in science and elsewhere (e.g., Merton 1973, Aldrich 1999, Monge et al. 1998, McCaffrey et al. 1995, Coleman 1973, Eyerman and Jamison 1991, Hess 1998, Melucci 1999). It requires that contributors relinquish control of knowledge they have developed for a project and make it a public good by unconditionally supplying it to a “common pool.” This requirement enables collective action projects to avoid the social loss problem associated with the restricted access to knowledge of the private investment model. At the same time, it creates problems with respect to motivating potential contributors to collective action projects.

Because contributions to a collective action project are a public good, potential beneficiaries of that good have the option of waiting for others to contribute and then free-riding on what they have done (Olson 1967). One solution to this problem is to supply some form of monetary or reputation or other subsidy to contributors to collective action projects to raise their level of motivation. For example, many societies provide monetary subsidies for basic research for this reason. The social structure of science itself then operates via norms of reciprocity and knowledge sharing among scientists to insure contributions to public goods are made, and to offer reputation-based rewards for good performance (Merton 1973, Stephan 1996).

In the case of open source software development projects, we see an interesting compound of the private investment and collective action models of innovation. We term this compound the “private-collective” innovation model. In this model, participants in open source software projects use their own resources to privately invest in creating novel software code. In principle, these innovators could then claim proprietary rights over their code, but instead they choose to freely reveal it as a public good. Clearly, the net result of this behavior appears to offer society the best of both worlds—new knowledge is created by private funding and then offered freely to all. However, it also creates an intriguing puzzle. As Lerner and Tirole (2000) put it: “Why should thousands of top-notch programmers contribute freely to the provision of a public good?”

Much of the research needed to answer that puzzle is yet to be done. Answering it will involve, we think, revisiting and easing some of the basic assumptions and constraints conventionally applied to the private investment and collective action models of innovation. In essence, we think that each of the two basic models—in an effort to offer “clean” and simple models for research—have excluded from consideration a very rich and fertile middle ground where incentives for private investment and collective action can coexist, and where a “private-collective” innovation model can flourish. We think this middle ground is where open source software projects in fact reside. The end result of exploring it will be, we think, a deeper understanding of a promising new mode of organization for innovation that can indeed deliver “the best of both worlds” to society under many conditions. In the remainder of this section we consider how open source software development practice deviates from the conventional assumptions of the private investment and collective action models of innovation. Then, we show how the conditions actually faced by open source software projects offer the basis for a novel, private-collective model for the motivation of innovation.

The central deviation we believe that open source software projects display with respect to the assumptions about incentives embedded in the private investment and the collective action models of innovation is that contributions to open source software development are not pure public goods—they have significant private elements even after the contribution has been freely revealed.

More specifically, the private-collective model of innovation occupies the middle ground between private investment and collective action models by:

•Eliminating the assumption in private investment models that free revealing of innovations developed with private funds will represent a loss of private profit for the innovator and so will not be engaged in voluntarily. Instead it proposes that under common conditions free revealing of proprietary innovations may not involve a loss of profit to innovators who developed those innovations with private funds. Indeed, under some conditions free revealing may actually result in a net gain in private profit for the innovator. For example, free revealing can increase innovation diffusion and so increase an innovator’s innovation-related profits through network effects.

•Eliminating the assumption in collective action models that a free rider will be able to obtain benefits from the completed public good that are equal to those a contributor can obtain. Instead, it proposes that contributors to a public good can inherently obtain private benefits that are tied to the development of that good. These benefits are available only to project contributors and not to free riders and represent a form of “selective incentives” for project participation that need not be managed by collective action project personnel." (http://opensource.mit.edu/papers/hippelkrogh.pdf)