Kamyshev and Lee: Open-source software defies theory

Imagine a group of Yale students is conducting a research project on their favorite economics topic of supply and demand. They open up Firefox, type in Wikipedia and sift through a few pages. Somewhere on the background, a piece of software called MediaWiki — run by an Apache Web Server — renders a page by using data from a MySQL database; most of the data is hosted on the operating system Ubuntu Linux. A good day’s work is done, and the students close their computers.

Yet even though the economic theories seem to make complete sense, something is amiss in the air. The five software products mentioned above are all free. They are free, not only in the sense that they don’t cost any money (free as in “somebody else’s beer”), but also in the sense that they can be modified (free as in “freedom”). Wikipedia is free for all its users, lacks ads, does not pay its contributors and relies exclusively on donations.

These products are all part of a worldwide movement to give users the power to modify the content they are using. The movement, dubbed “Wikinomics” by the writers of the eponymous book, encompasses open-source software, collaborative information creation and user-generated content.

Open-source software powers the majority of the Internet. Whether we like it or not, Wikinomics is here to stay. Even if Yale students do not want to add to the new economy, they will have to learn to compete with this new business model. Though we are surrounded by Wikinomics, many economists have chosen to ignore it, or even label it as contradicting free market principles.

Wikinomics flies in the face of current economic thought, since it frequently does away with the concept of pricing. It does not seem reasonable that a diverse group of individuals would volunteer their time to create something without a sale price.

Why do people contribute to collective intelligence projects if not for money? Salaries or exchange rates do not control contributions to open-source software; official employment figures do not count them.

However, open-source software does impact the economy by competing for market share of existing products. The largest technology companies have temporarily found ways to cope with open-source competition. Newspapers are having a tougher time. Although currently sophisticated open-source consulting and financial advice services do not exist, those services could appear and grow at any moment. Without knowing how to coexist and compete with open- and crowd-sourced alternatives, Yale students with backgrounds in traditional economics may have a nasty surprise in store.

Yale’s Economics and Political Science departments need to devote more attention to these trends. A high-level economics elective is not enough. Wikinomics is challenging the fundamental assumptions that traditional economics makes about productivity, incentives, demand, information asymmetry and even the very structure of market and government. Yale needs to work toward creating an interdisciplinary field that combines computer science and economics.

Economics classes at Yale reinforce the same theories from class to class. Just take a look at “Intermediate Microeconomics” evaluations online. Instead of trying to give students proofs and belaboring the same theory — as happens in economics at Yale — one could do much better by exposing them to a variety of theories. A new economy needs new types of thinkers to lead it.

Comments

  • Dennis Byron

    You are asking the right questions about the impact on the market of open source software. But the answers so far do not appear to be out of line with what the economics students' theory should tell them. At least relative to open source software, from a market point of view, the dynamics are the same as put forward by King Gillette over 100 years ago. Same for the others I suspect: instead of placing ads in newspapers, they are placed on Google.