Value and Veracity

As I mentioned in an earlier post, our standard methods of providing an incentive to innovate - patents or copyright - come with the significant cost of creating a temporary monopoly (people will have to pay too much for a while to enjoy the new product). But, as Nobel laureate Joseph Stiglitz pointed out in a talk given at Google, there are other possible incentives for innovation. He suggests setting up large prizes to encourage research into new medicines.

To motivate the production of knowledge, academics already have something similar to what Stiglitz suggests in the form of Nobel Prizes and tenure: the possibility of secure employment, intellectual prestige, and a good chunk of money does a lot to motivate young intellectuals to create knowledge (which the rest of the world may freely benefit from). Why not do the same thing for open source software, another public good which, like good ideas and new medicines, benefits everybody when it is produced? Turns out Sun Microsystems recently realized the wisdom in this possibility (Or at least it was recently when I first started writing this post). They are going to give out a million dollars in prizes to people who contribute to open source software development.

That’s is a good start, but I would say it’s a long shot from approaching anything near an economically efficient level of public funding for open source innovation. Here’s why:

Open source software (OSS) is a public good in the purest sense of the term. This means if I create an OSS program, everybody else in the world will be free to use it and benefit from it. It also creates a free-rider problem: once somebody pays the costs to produce an OSS program (primarily the labor involved in writing the code), everybody else will be able to use it, and “free-ride” off of the efforts of the creator, who might not get paid squat. So why would anybody want to write an OSS program in the first place?

That’s a good question. A complete answer is probably very complicated, but whatever inspires hackers to work on open-source code, they could probably be more inspired if considerable wealth and fame were on the line. But would it really be worth many millions? I say hell yes.

Think of how much money people in the world economy spend on software: $200 here for OS X, $300 there for Vista, maybe $650 for Photoshop, and $300 for MS Office. If Americans currently average around $100/year on everyday software (stuff than can feasibly be replaced by open-source alternatives), then American as a group are spending tens of billions in total. Now, if just ten percent of that was turned into public funding and used to sponsor OSS, we would have something on the order of a billion dollars to spend - quite a lot more than Sun is putting up.

Maybe the most interesting question here is how we could spend that money effectively. But putting that aside (please do comment if you have thoughts), with that kind of money, I bet we could somehow get the world’s programmers to put a lot more effort into OSS. Just for fun, let’s imagine an annual “Torvalds Prize” given out in Sweden (or somewhere) every year that includes a six-or-seven figure cash prize and a great big gold medal. If we had it five years ago, probably some people associated with Apache, Mozilla, and maybe Ubuntu could be driving around in Ferraris wearing their great big gold medals. This would be a huge motivator for young computer whizzes everywhere, and surely within a few years the quality of Linux, Gimp, and OpenOffice would fly past that of their closed-source rivals (Windows/Mac OS, Photoshop, MS Office, respectively).

That’s a bit hyperbolic, and high-profiles prizes are not the only interesting potential incentive for OSS development, but I think this sort of analysis has serious policy relevance. Software is a huge part of our economy these days, and with Apache and Firefox we have already seen widely-used open-source software that is a perfect substitute for (or even superior to) the proprietary version. Other programs have been catching up. With just a little public funding, who knows how many other open-source programs would fly past propriety rivals and into widespread use?

And here’s the really relevant thought experiment: if Americans collectively pooled as much money as they currently pay for software, could it be used to produce higher quality open-source software than Microsoft, Apple, Adobe, etc are currently putting out? For the economists out there: are we in the midst of a huge market failure - are we seriously underestimating the positive externalities of open-source software (or overestimating the costs of producing it)?

It’s hard to imagine what we could do with tens of billions going into OSS, especially when we don’t have a clear idea of how we would be using that money, but this is an important question to ask.