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Intellectual Property Rights and Ex-Post Transaction Costs: the Case of Open and Closed Source Software

Author

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  • Sebastian von Engelhardt

    (Friedrich Schiller University Jena, School of Economics and Business Administration)

Abstract

The economic characteristics of software and transaction costs explain, why closed source and open source software co-exist. It is about the efficient use of a non- and anti-scarce resource. But because of ex-post transaction costs that lead to information asymmetries, some property rights regarding the resource "source code" are not exclusively separable. Thus, the first best allocation of property rights, that would yield an optimal usage of a source code, is not realizable. Or, that is to say, a first best realization of contracts is not feasible. Hence, open and closed source software are two second best arrangements, both with specific assets and drawbacks. The principle of closed source benefits from direct (monetary) incentives and control, but has limits in its scope (size) because of transaction costs. Open source, on the one hand, benefits from its openness that creates spillovers and enables to incorporate human capital that is not acquirable for closed source firms. On the other hand, there are costs of openness, such as coordination costs (consensus finding, etc.) the danger of free riding or under provision, or forking.

Suggested Citation

  • Sebastian von Engelhardt, 2008. "Intellectual Property Rights and Ex-Post Transaction Costs: the Case of Open and Closed Source Software," Jena Economics Research Papers 2008-047, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2008-047
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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2008/wp_2008_047.pdf
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    Cited by:

    1. Engelhardt, Sebastian v. & Freytag, Andreas, 2013. "Institutions, culture, and open source," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 90-110.
    2. Michael Fritsch & Sebastian von Engelhardt, 2010. "Who Starts with Open Source? Institutional Choice of Start-Ups in the German ICT Sector," Jena Economics Research Papers 2010-049, Friedrich-Schiller-University Jena.
    3. Sebastian von Engelhardt, 2010. "Quality Competition or Quality Cooperation? License-Type and the Strategic Nature of Open Source vs. Closed Source Business Models," Jena Economics Research Papers 2010-034, Friedrich-Schiller-University Jena.

    More about this item

    Keywords

    open source; intellectual property rights; transaction costs; information goods; modeling property rights;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L17 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Open Source Products and Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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    1. Portal:Freie Software/Literatur in Wikipedia German

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