The emergence of GNU/Linux as a viable alternative to the Windows operating system and of the Apache webserver software as the leading web server have focused wide attention on the phenomenon of free or open source software. Most of the attention to the economic aspects of the phenomenon has been focused on the question of incentives-why, it is asked, would anyone invest effort in a productive enterprise in whose fruits they do not claim proprietary rights of exclusion-and has been devoted to studying this phenomenon solely in the context of software development. In this paper I expand consideration of the policy implications of the apparent success of free software in two ways. First, I suggest that the phenomenon has broad implications throughout the information, knowledge, and culture economy, well beyond software development. Second, I suggest reasons to think that peer production may outperform market-based production in some information production activities. The first part of the paper expands the observation of the phenomenon of peer production to additional layers of the communications process. In particular, I describe instances of peer production of content, relevance, accreditation, and valueadded distribution as parallels to peer production of software. The second part suggests that the primary advantage of peer production is in acquiring and processing information about human capital available to contribute to information production projects, and that in this it is superior to both market-based or hierarchical managerial processes. In addition to the informational advantage, peer production more efficiently assigns human capital to information inputs because it does not rely on controlling bounded sets of either factor. Because of variability of talent and other idiosyncratic characteristics of human capital, there are increasing returns to the scale of the set of agents permitted to work with a set of resources in pursuit of projects, and to the set of resources agents are allowed to work with. The unbounded sets of both human capital and information inputs that are used in peer production capture these economies of scale more effectively than can firms, and to a * Professor of Law, New York University School of Law. Visiting Professor, Yale Law School. Research for this paper was partly supported by a grant from the Filomen D'Agostino and Max Greenberg Fund at NYU School of Law. Oct. 2001 lesser extent markets, both of which rely on securing access to bounded sets of agents and information inputs to reduce uncertainty about the success of projects. 2 The primary costs of information production and exchange are physical capital costs, communication costs, human capital costs, and information input costs. Information inputs are a pure public good, not an economic good. As rapid advances in computation lower the physical capital cost of information production, and as the cost of communications decline, human capital becomes the salient economic good involved in information production, and the relative advantage of peer production increases in importance. Peer production is often met by two kinds of objections. The first is the question of incentives. The literature analyzing open source software has largely solved this issue by identifying a series of appropriation mechanisms-from pleasure to reputation and skills development-that serve to justify individual investment in a peer production project. Here I do not add explanations, but rather suggest that the explanations given are examples of a more general claim. That is, the incentives problem is trivial if a sufficient number of individual contributors can be networked, and their various-sized contributions (each determined by the motivation factors driving any given contributor) can be integrated into a finished product. Modularity, granularity of components, and the difficulty/cost of integration become the efficient limit on peer production, not incentives for contribution or the property rights available in the output. This leaves the other traditional wariness of distributed nonmarket, non-firm based production processes generally captured by the term "tragedy of the commons." I explain how peer production maps on to general understandings of the limitations of commons-based production, and how coordination and integration can be achieved by one of a number of mechanisms, including the reintroduction of limited market-based or hierarchical integration, iterative peer production of integration, and technological clearance. In all events, these options are sufficiently low cost to allow their performance by actors who do not then need to appropriate the whole of the joint product in a way that, if undertaken, would undermine the peer production process ex ante. These conclusions have policy implications for intellectual property law. First, they attenuate the value of strong rights by identifying an important, non proprietary sector that is burdened by, but does not benefit from, strong intellectual property rights. Second, they identify a cost to strong intellectual property rights not previously identified, which is especially salient in a pervasively networked society. This cost is the loss of the information that peer production efforts generate and the loss of potential productive resources-human capital that could be used productively and is not because market-based and hierarchical information production are poor mechanisms for identifying and pooling these resources. This framework suggests 3 COASE 'S PENGUIN Oct. 2001 avenues for further research. Peer production offers rich material for empirical studies into collaborative behavior, measurement and comparison of the relative importance of peer production in our information production system, and relative characteristics of information products produced using different organizational approaches. It also suggests room for theoretical work on organizational forms as information processing devices, under conditions where information processing technology has changed significantly. Imagine that back in the days when what was good for GM was good for the country an advisory committee of economists had recommended to the President of the United States that the federal government should support the efforts of volunteer communities to design and build their own cars, either for sale or for free distribution to automobile drivers. At the heart of the economic engine of the world's most advanced economies, and in particular that of the United States, we are beginning to take notice of a hardy, persistent, and quite amazing phenomenon-a new model of production has taken root, one that should not be there, at least according to our most widely held beliefs about economic behavior. It should not, the intuitions of the late 20th century American would say, be the case that thousands of volunteers will come together to collaborate on a complex economic project. It certainly should not be that these volunteers will beat the largest and best financed business enterprises in the world at their own game. And yet, this is precisely what is happening in the software world. The emergence of free software, and the phenomenal success of its flagships-the GNU/Linux operating system, the Apache web server, Perl, sendmail, BIND-and many others, 2 should force us to take a second look at the dominant paradigm we hold about productivity. That paradigm is that production is organized Oct. 2001 in only one of two forms-market-based exchanges or firm-based hierarchies. 3 Both these traditional forms of production depend on clear property rights to control resources and outputs. This has led information policy in the past decade to focus on strengthening property rights and facilitating contractual exchange-the building blocks of an information economy built on the same model as the economy of coal and steel. While there are many other critiques of the idea that strong property is appropriate for information and cultural production, the success of open source software offers an additional set of considerations regarding this trend. This success suggests that in the information economy, the economy that is increasingly occupying center stage in the developed economies, property-based markets and hierarchically managed firms are no longer the only games in town. Indeed, they might not be the best option. And the presence of a potentially important mode of production that is harmed, not helped, by property rights should give us more reasons to pause on the way to ever-stronger rights. But my purpose in this paper is not normative, but positive. I am trying to outline the parameters of the phenomenon to be studied, and to suggest an initial framework for thinking about it. More detailed descriptions, and normative conclusions, I leave for future work. Some explanations of free software focus on what is special about software, 4 or about the community ethics of hackers. 5 Part I of this article will describe a series of similar distributed models of non proprietary production by peers who do not interact either through a firm or through a market. Indeed, once one begins to look for them, such projects are ubiquitous, robust, and extend to all types of information production and exchange. They exist in highbrow or lowbrow form. They cover communicative functions ranging from the authoring of materials to identifying relevance or providing accreditation to materials authored by others, as well as to providing the mundane tasks of the distribution chain, like proofreading. The phenomenon is, I suggest, generally applicable to information production once you connect everyone to everyone else-an insight encapsulated in Moglen's Metaphorical Corollary to Faraday's Law, 6 -and is explored in Boyle's work on the 3 The initial framing in these terms is Ronald H. Coase, The Nature of the Firm, 4 Economica 386 (1937). The problem of organization and its forms relative to the un-organized market is central to the new institutional economics. See Oliver Williamson, The Economic Institutions Of Capitalism (1985). State hierarchies are also an option, and while the extreme version-socialist production-is largely discredited, some state production of some goods, like power, is still very much in play. Here I focus only on market production, however, whether decentralized and price-driven, or firm-based and managed. Any arguments about the importance of governmental investment in science, research, and the arts are independent of the potential conclusions for intellectual property that this paper suggests. Part II considers whether from a social welfare perspective peer production is "better" in some measure than market or hierarchical production. The primary answer, following Raymond, 9 given by others who have tried to explain why open source software development is superior, is that it allows development projects to draw on much larger pools of developers-primarily testers who test for bugs, but also programmers who then fix them. Another, more recent explanation, has been that introducing users as part developers and opening the source code permits better information about the eventual end uses desired by consumers, and that such detailed information about specific customization needs is too costly to express in the market, and is therefore lost to commercial manufacturers. I offer a related but somewhat different explanation, that focuses on the different characteristics of firms, markets, and distributed peer production processes as means of (1) processing information about human capital available to work on projects, and (2) combining human effort and resources to produce outcomes. (1) is that different modes of organizing production are better or worse at processing different types of information. Markets and hierarchies are both relatively lossy media when applied to questions of human capital, primarily in terms of creativity and ability, motivation, and focus (efficiency relative to ideal ability at a given time for a given project). This is information that is uniquely in the knowledge of individuals and is immensely difficult to measure and specify in contracts for market clearance or for managerial allocation. A distributed peer production model allows individuals to self-identify for tasks for which they are likely to be the best contributor. This makes peer production particularly well suited to organize activities in which human capital is the dominant input, as long as the coordination problems can be solved and that some mechanism to adjust for individuals' errors regarding their own suitability for a job is implemented. My basic claim as to (2) is that there are increasing returns to scale when one increases the number of agents who can act on any given resource set, and to the 7 James Boyle, The Second Enclosure Movement and the Construction of the Public Domain, (paper for the "Conference on the Public Domain," Duke Law School, Durham, North Carolina, November 9-11, 2001 number of resources in a resource set open for any agent to work with. Markets and firms use property and contract to secure access to bounded sets of agents, resources, and projects, thereby reducing the uncertainty as to the likely effects of decisions by agents outside the sets on the productivity of the agents within the set. The permeability of the boundaries of these sets is limited by the costs of making decisions in a firm about adding or subtracting a marginal resource, agent, or product, and the transaction costs of doing any of these things through the market. Peer production relies on making an unbounded set of resources available to an unbounded set of agents, who can apply themselves towards an unbounded set of projects and outcomes. The variability in talent and other idiosyncratic characteristics of individuals suggests that any given resource will be more or less productively used by any given individual, and that the overall productivity of a set of agents and a set of resources will increase more than proportionately when the size of the sets increases towards completely unbounded availability to all agents of all resources for all projects. The physical capital costs of sophisticated information and cultural production are declining dramatically. Communications systems are making globally distributed talent pools available for any given project while simultaneously reducing the distribution costs of both resources and products. Under these conditions, two factors of information production gain in salience-the first is a public good, the second a normal economic good. First are information input costs-the cost of using existing information-like an existing software platform that can be upgraded or customized or an existing database of news items that can be combined into many different commentaries. The actual marginal cost of these inputs is zero because of the nonrivalry of information, although the price at which they will be available is likely positive, with its precise magnitude a function of the intellectual property system in place and the elasticity of demand for a given input given substitutability with other information inputs. The second factor, which is the true economic good involved in information production (in the sense that it is both rival and excludable), is human capital. It is precisely under these conditions-where the other economic goods associated with the production of information-physical capital and communications costs-are low, that the mechanism for allocating human capital becomes central. And it is precisely in the allocation of that factor that the advantage of peer production both as an information process and as an assignment process is salient. In Part II I suggest that-consistent with the claims of those who have attempted to argue for the sustainability of open source development-the incentives problem is a trivial one once a sufficient number of contributors can be involved. The actual limitation on peer production is the capacity of a project to pool a sufficient number of contributors to make the incentives problem trivial. This means that the modularity of an information product and the granularity of its components are what determine the capacity of an information product to be produced on a peer production model. If the components are sufficiently small grained, and the cost of connecting people to projects sufficiently low thanks to efficient cheap network communications, the incentives necessary to bring people to contribute are very small. As a practical matter, given the diversity of motivations and personal valuations on the productive activity itself and on the likelihood of desirable consequences from participation, the incentives problem is trivial. This leaves the organization problem-how to get all these potential contributors to work on a project together, how to integrate their contributions and control their quality-as the central limiting factor. The organization problems are solved in various forms. These include social organization-like peer review, technical solutions-such as automatic averaging out of outlying contributions, iterative peer production of the integration function itself-such as by developing an open source software solution for integrating contributions, or by a limited reintroduction of market-based and hierarchical mechanisms to produce integration. While open source software development has captured the attention and devotion of many, it is by no stretch of the imagination the first or most important instance of production by peers who interact and collaborate without being organized on either a market-based or a managerial/hierarchical model. Most important in this regard is the academic enterprise, and in particular science. Thousands of individuals make individual contributions to a body of knowledge, set up internal systems of quality control, and produce the core of our information and knowledge environment. These individuals do not expect to exclude from their product anyone who does not pay for it, and for many of them the opportunity cost of participating in academic research, rather than applying themselves to commercial enterprise, carries a high economic price tag. In other words, individuals produce on a non proprietary basis, and contribute their product to a knowledge "commons" that no one is understood as "owning," and that anyone can, indeed is required by professional norms to, take and extend. We appropriate the value of our contributions using a variety of service-based rather than product-based models (teaching rather than book royalties) and grant funding from government and non-profit sources, as well as, at least as importantly, reputation and similar intangible-but immensely powerful-motivations embodied in prizes, titles etc. It is easy, though unjustifiable, in the excitement of the moment of transition to an information economy, to forget that information production is one area where we have always had a mixed system of commercial/proprietary and non proprietary peer production-not as a second best or a contingent remainder from the middle ages, but because at some things the non proprietary peer production system of the academic world is simply better. In one thing, however, academic peer production and commercial production are similar. Both are composed of people who are professional information producers. The individuals involved in production have to keep body and soul together from information production. However low the academic salary is, it must still be enough to permit one to devote most of one's energies to academic work. The differences reside in the modes of appropriation and in the modes of organization-in particular how projects are identified and how individual effort is allocated to project. Academics select their own projects, and contribute their work to a common pool that eventually comprises our knowledge of a subject matter, while non-academic producers will often be given their marching orders by managers, who themselves take their focus from market studies, and the product is then sold into the market for which it was produced. Alongside the professional model, it is also important to recognize that we have always had nonprofessional information and cultural production on a non proprietary model. Individuals talking to each other are creating information goods, sometimes in the form of what we might call entertainment, and sometimes as a means for news distribution or commentary. Nonprofessional production has been immensely important in terms of each individual's information environment. If one considers how much of the universe of communications one receives in a day comes from other individuals in one-to-one or small-scale interactions-such as email, lunch, or hallway conversations-the effect becomes tangible.
Yochai Benkler REF posits that Wikipedia and open-source development both fall into a general category of "peer production" systems.
Coase's Penguin, or Linux and the Nature of the Firm
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