This paper examines the choice of license terms along the development of a piece of software. Three licenses are compared, the proprietary one, the Berkeley Software Distribution, and the General Public License. The choice of one or the other license depends on the characteristics of the software's user base, the market conditions on the developers' job market and the costs involved in maintaining a proprietary software vs. the costs involved in coordinating a software project in a decentralized fashion. That choice influences the distribution of welfare between users, developers and the software's development leader. It also determines the software's pace of development and thus the level of welfare generated. The model explains why a software's license terms may change along its development. Several scenarii may arise, depending on the initial conditions and the chance events along the life of the project. In the context of this paper, open-source license terms are chosen even when they result in a reduction in global welfare. Welfare is increased by forbidding the use of the GPL license terms and going back to the alternative between proprietary and public domain licenses.
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