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Open Source Software and the Organization of Work
Giampaolo Garzarelli, Università degli Studi di Roma, “La Sapienza”

Currently, the most important priority for research is, in my view, understanding the organization of work of Open Source Software (OSS). OSS organization of work is in fact not a factory; or a firm; or a market; it is not for profit; and it has no ownership structure. And yet it is governed by some basic rules of the game – it is, more than just metaphorically, a stable and productive social institution.

Although most recent research efforts in the fields of the economics of organization are dedicated to the important problems of shirking, transaction cost minimization, and optimal ownership structure, the most basic function – the ultimate primitive, if you prefer – of economic organization remains that of alignment of expectations. That is to say that knowledge organization and economic organization are the same problem – or, somewhat more accurately, economic organization is fundamentally a problem of management of knowledge. Linus Torvalds (1999) for example makes clear how in OSS development the organization of code and the organization of developers essentially amounts to the same problem.

If the organization of the market allows the spontaneous coordination of knowledge by means of the price system (cf. Hayek 1948, Chs. 2 and 4), a firm on the other hand must try to solve the problem of organization consciously (cf. Coase 1937). The market in fact concerns the economic organization of knowledge that is usually not idiosyncratic; that concerns values that can be quantified and articulated; that is easily intelligible to all – namely, price and quantity. The economic organization of the firm conversely concerns the coordination of knowledge that is difficult to articulate or to understand for all. How does one easily communicate an idea? How does one easily evaluate individual competence? How does one easily communicate entrepreneurial opportunity? How does one easily communicate possible opportunities for innovation? The economic organization of an intentional organization such as a firm to pursue some more-or-less well-defined objective is thus a more difficult problem than that of a market (e.g. Silver 1984).

Discovering knowledge differences or similarities and making use of them in order to pursue one’s ends is moreover not costless. Knowledge search is expensive. Because knowledge is dispersed, the organizational problem does not usually have a cheap and easy solution. Ideally – again, think of the market – the “first-best solution” to the problem would result in the coincidence (or colocation) of productive knowledge and rights to act on that knowledge in the same hands. As in the case of Mohamed and the mountain whereby Mohamed could go to the mountain or the mountain to Mohamed, there are two ways we could achieve a solution to this problem. We could let competence move to those who have the rights to act; or, we could let rights to act move to those with competence. The perfect migration, as it were, of knowledge to rights and rights to knowledge is possible only in markets for in firms perfect alienation of rights does not exist. A worker in a firm cannot sell (or exchange) his or her job (the employment bundle of rights) to someone else and capture rents from such alienation. The free entry and exit in a firm is limited by its rules, which are not based on voluntary exchange of rights (Jensen and Meckling 1992).

OSS organization of work – which is neither a market nor a firm – also seems to solve the problem of organization in a first-best manner by freely allowing rights to go to competence as well as competence to go to rights. This is accomplished notwithstanding the idiosyncratic knowledge involved in software production. It is in fact suggested that from an organizational point of view open source behaves much like a Hayekian spontaneous order that, however, coordinates knowledge other than price and quantity (Raymond 2001).

I think that most reasons for why we observe OSS organization resides in the nature of the input, namely, knowledge possessed by open source developers. Yet, I also believe that input alone cannot explain such new organizational structure. Software, which is the output, has also some rather unique characteristics that play a significant role in the existence and persistence of this new organization. Software is per se an ever-evolving capital structure (Lachmann 1978) embodying knowledge (Baetjer 1998). To look at it differently, in the case of software production the input and the output are both (nonrival) intangibles. And this is a rather rare organizational attribute (cf. Garzarelli forthcoming).

Hence, it seems to me that some first key research questions to begin to understand the complex OSS organization of work are:

  • why is such organization possible?,
  • why can it persist through time?, and
  • is there nonetheless a theoretical – or even historical – organizational ideal-type whose characteristics it does more-or-less resemble, e.g., the putting-out? (See Table 1.)

It is my belief that by exploring these issues we will also obtain some insights on intellectual property rights, public policy, and business strategy.

Baetjer, Howard Jr. 1998. Software as Capital. An Economic Perspective on Software Engineering. Los Alamitos, CA, IEEE Computer Society.

Coase, Ronald H. 1937. “The Nature of the Firm,” Economica, N.S., 4(16): 386-405(November).

Garzarelli, Giampaolo forthcoming. “Open Source Software and the Economics of Organization,” in J. Birner and P. Garrouste (eds.), Austrian Perspectives on the New Economy, London and New York, Routledge. (A previous version is available from: ‹http://opensource.mit.edu/papers/garzarelli.pdf›.)

Hayek, Friedrich A. von 1948. Individualism and Economic Order. Chicago: Chicago University Press.

Jensen, Michael C. and William H. Meckling 1992. “Specific and General Knowledge and Organizational Structure,” in W. Lars and H. Wijkander (eds.), Contract Economics. Oxford, Basil Blackwell: 251-274.

Lachmann, Ludwig M. 1978. Capital and Its Structure. Kansas City: Sheed, Andrews, and McMeel.

Langlois, Richard N. 1999. “The Coevolution of Technology and Organization in the Transition to the Factory System,” in P. L. Robertson (ed.), Authority and Control in Modern Industry: Theoretical and Empirical Perspectives. London: Routledge: 45-72.

Raymond, Eric S. 2001. The Cathedral and the Bazaar. Musings on Linux and Open Source by an Accidental Revolutionary, Revised Edition. Sebastopol, CA: O’Reilly & Associates, Inc. (Also visit: ‹http://www.tuxedo.org/~esr/›.)

Silver, Morris 1984. Enterprise and the Scope of the Firm: The Role of Vertical Integration. Oxford, Martin Robertson.

Torvalds, Linus 1999. “The Linux Edge,” in Ch. DiBona, S. Ockman and M. Stone (eds.), Open Sources: Voices from the Open Source Revolution. Sebastopol, CA: O’Reilly & Associates, Inc.: 101-11. (Also visit: ‹http://www.oreilly.com/catalog/opensources/book/toc.html›.)