Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development
AbstractWe consider software developers who can either work on an open source project or on a closed source project. The former provides a publicly available signal about their talent, whereas the latter provides a signal only observed by their employer. We show that a talented employee may initially prefer a less paying job as an open source developer to commercial closed source projects, because a publicly available signal gives him a better bargaining position when renegotiating wages with his employer after the signal has been revealed. Also, we derive conditions under which two effects suggested by standard intuition are reversed: a “pooling equilibrium” (with both talented and untalented workers doing closed source) is less likely if differences in talent are large; a highly visible open source job leads to more effort in a career concerns setup. The former effect is because a higher productivity of talented workers raises not only the value but also the cost of signaling; the latter stems from more effort and the choice of a high visibility job being substitutes for the purpose of signaling. Results naturally apply to other industries with high and low visibility jobs, e.g. academic rather than commercial research, consulting rather than management.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 08-06.
Length: 36 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
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Open source software; signaling;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CTA-2008-10-28 (Contract Theory & Applications)
- NEP-GTH-2008-10-28 (Game Theory)
- NEP-IPR-2008-10-28 (Intellectual Property Rights)
- NEP-LAB-2008-10-28 (Labour Economics)
- NEP-NET-2008-10-28 (Network Economics)
- NEP-PPM-2008-10-28 (Project, Program & Portfolio Management)
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