There was some discussion after the "Open Source Pizza" Tuesday night
about software licensing. I recently ran across a paper that
studies the conomic analysis of optimal licensing which compares free/
open licenses to proprietary licenses. The key yardstick is the
level of benefit or "welfare" provided to both consumers and to
developers, while accounting for innovation over time.
It essentially (attempts to) answer this question:
If proprietary incentives matter for innovation, and if public access
to a reusable free/open platform also matters for welfare, then what
scope of protection creates the greatest good?
Here's what I took as the "key findings"
1) HIGHEST SOCIAL WELFARE
a) The highest social welfare of any configuration is a pool
of "freedom motivated" developers matched with completely free/
openlicenses. This is higher than a pool of "profit motivated"
developers matched with proprietary licenses.
b) BUT, if any fraction of the population is profit motivated,
then the socially optimal license will ALWAYS contain the offer of a
proprietary period t > 0. This stimulates higher innovation.
c) Regardless of whether an institution is freedom or profit
motivated, the optimal license is more open than BSD in the sense
that the length of proprietary protection on derivative works should
not be arbitrarily long. Multi-period innovation is thwarted by
overlong protection.
2) PROFIT MOTIVATED FIRMS
The analytic framework allows the authors to consider stylized
business models ranging from completely closed and proprietary (e.g.
restrictive End-User-License-Agreements), through partially open
access (e.g. allowing plug-ins and APIs), to subsidizing users and
taking all profits on developer royalties (e.g. computer games), to
non-profits that open all aspects of a platform. They find that:
a) Profit motivated firms rationally choose EULAs more often
than is socially optimal.
b) Decentralized innovation can increase profits over going it
alone. For profit motivated firms, this means it becomes privately
rational to choose open licenses once reuse and network effects pass
a critical threshold. This effect can even dominate subcontracts
with targeted developers.
c) Even non-profits can benefit by harnessing the efforts of
profit-motivated developers and giving them a brief period to charge
for the value of their investments.
3) PLATFORM OWNER TENURE
One open question has been whether large projects need "sponsors."
In general, the authors find that they do.
More specifically, they find that a platform sponsor needs to
exercise a long term interest in a platform as a means to enforcing
good behavior on the part of decentralized profit motivated
developers. A prisoner's dilemma emerges in which anyone who likes
to charge prefers to do so as long as possible but, if they do, then
the whole community suffers. If a license can enforce a reasonable,
i.e. short term, proprietary period then everyone, including the
developer, wins over multiple periods of innovation. For this to
work, the tenure of the platform sponsor must survive multiple
periods of tenure for downstream developers.
4) PIRACY
Even if no reuse is possible and innovation never occurs, conditions
exist where a profit motivated firm prefers to allow limited piracy,
interpreted as free user access, to a portion of its products.
Roughly interpreted, word-of-mouth effects on sales can dominate
lost sales.
This paper is written for an academic audience. So, it can be
mathematically challenging, but if you want a "proof" of certain
free / open source arguments, here it is: http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=639165
