Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development

Marc Blatter and Andras Niedermayer

No 08-06, Working Papers from NET Institute

Abstract: We 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.

Keywords: Open source software; signaling (search for similar items in EconPapers)
JEL-codes: C70 L86 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-09, Revised 2008-09
New Economics Papers: this item is included in nep-cta, nep-gth, nep-ipr, nep-pr~, nep-lab, nep-net and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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