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<nettime> Coase's Penguin, or Linux and the Nature of the Firm
nettime's avid reader on Sat, 14 Dec 2002 17:13:11 +0100 (CET)

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

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

Yochai Benkler

Full Text (.pdf)


For decades our understanding of economic production has been that 
individuals order their productive activities in one of two ways: either as 
employees in firms, following the directions of managers, or as individuals 
in markets, following price signals. This dichotomy was first identified in 
the early work of Nobel laureate Ronald Coase, and was developed most 
explicitly in the work of neo-institutional economist Oliver Williamson. In 
the past three or four years, public attention has focused on a 
fifteen-year-old social-economic phenomenon in the software development 
world. This phenomenon, called free software or open source software, 
involves thousands or even tens of thousands of programmers contributing to 
large and small scale project, where the central organizing principle is 
that the software remains free of most constraints on copying and use 
common to proprietary materials. No one "owns" the software in the 
traditional sense of being able to command how it is used or developed, or 
to control its disposition. The result is the emergence of a vibrant, 
innovative and productive collaboration, whose participants are not 
organized in firms and do not choose their projects in response to price 

In this paper I explain that while free software is highly visible, it is 
in fact only one example of a much broader social-economic phenomenon. I 
suggest that we are seeing is the broad and deep emergence of a new, third 
mode of production in the digitally networked environment. I call this mode 
"commons-based peer-production," to distinguish it from the property- and 
contract-based models of firms and markets. Its central characteristic is 
that groups of individuals successfully collaborate on large-scale projects 
following a diverse cluster of motivational drives and social signals, 
rather than either market prices or managerial commands.

The paper also explains why this mode has systematic advantages over 
markets and managerial hierarchies when the object of production is 
information or culture, and where the capital investment necessary for 
production-computers and communications capabilities-is widely distributed 
instead of concentrated. In particular, this mode of production is better 
than firms and markets for two reasons. First, it is better at identifying 
and assigning human capital to information and cultural production 
processes. In this regard, peer-production has an advantage in what I call 
"information opportunity cost." That is, it loses less information about 
who the best person for a given job might be than do either of the other 
two organizational modes. Second, there are substantial increasing returns 
to allow very larger clusters of potential contributors to interact with 
very large clusters of information resources in search of new projects and 
collaboration enterprises. Removing property and contract as the organizing 
principles of collaboration substantially reduces transaction costs 
involved in allowing these large clusters of potential contributors to 
review and select which resources to work on, for which projects, and with 
which collaborators. This results in allocation gains, that increase more 
than proportionately with the increase in the number of individuals and 
resources that are part of the system. The article concludes with an 
overview of how these models use a variety of technological and social 
strategies to overcome the collective action problems usually solved in 
managerial and market-based systems by property and contract.

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