Coase's Penguin, or Linux and the Nature of the Firm

TL;DR

This paper argues that open source peer production of information and cultural materials is a widespread, scalable, and advantageous method in a networked society, surpassing traditional markets and hierarchies in efficiency.

Contribution

It introduces the idea that nonproprietary peer production is a broad, scalable phenomenon with systematic advantages over traditional organizational forms.

Findings

Peer production is limited by modularity, granularity, and integration costs.

It offers systematic advantages in organizing human capital and resources.

Decreasing capital and communication costs enhance peer production's relative benefits.

Abstract

The paper explains why open source software is an instance of a potentially broader phenomenon. Specifically, I suggest that nonproprietary peer-production of information and cultural materials will likely be a ubiquitous phenomenon in a pervasively networked society. I describe a number of such enterprises, at various stages of the information production value chain. These enterprises suggest that incentives to engage in nonproprietary peer production are trivial as long as enough contributors can be organized to contribute. This implies that the limit on the reach of peer production efforts is the modularity, granularity, and cost of integration of a good produced, not its total cost. I also suggest reasons to think that peer-production can have systematic advantages over both property-based markets and corporate managerial hierarchies as a method of organizing information and cultural production in a networked environment, because it is a better mechanism for clearing information about human capital available to work on existing information inputs to produce new outputs, and because it permits largers sets of agents to use larger sets of resources where there are increasing returns to the scale of both the set of agents and the set of resources available for work on projects. As capital costs and communications costs decrease in importance as factors of information production, the relative advantage of peer production in clearing human capital becomes more salient.