Collaboration, Peer Review and Open Source Software

Open source software development may be superior to proprietary development because the open source organizational form naturally minimizes transactions costs associated with privately distributed information, thereby avoiding certain agency problems. This manifests itself in the ability of open source communities to encourage collaborative sharing of ideas and critical peer review. When these activities are important, the open source organizational form endogenously may do better than a proprietary organizational form. The desire to improve quality by circumventing such agency concerns may induce the founder of a software project to choose the open source form even though doing so foregoes potential profits, and this effect is magnified when there is an existing competing closed source project. The types of software best suited to open source development are identified.

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