Coase’s Penguin, or, Linux and The Nature of the Firm

Innovation and Economic Growth, Intellectual Property and Open Source

Article Snapshot


Yochai Benkler


Yale Law Journal, Vol. 112, pg. 369, 2002


This paper looks at the economics of peer production.

Policy Relevance

Weaker intellectual property protection could increase economic growth through peer production.

Main Points

  • “Peer production” is when many individuals use social signals to cooperate on large-scale projects without being paid or directed by managers, motivated by nonmonetary concerns.

  • The Internet has enabled the growth of many peer production projects. Open source software has been produced in this way.

  • Peer production is better than markets and firms when the product being produced is information, and when the capital needed for production, such as computers, is dispersed.
    • Peers are less likely to forget who the best person for a particular job is.
    • When many contributors access large amounts of information, potential gains are great.
    • Removing property and contract rights reduces transaction costs; individuals may simply use the resources they want and work as they will.

  • Peer production uses technological and social strategies to overcome problems usually solved by property and contract, like shirking:
    • Projects are broken into small parts.
    • Nonmonetary rewards like enjoyment let projects proceed that would otherwise cost too much.

  • Stronger intellectual property rights will not increase growth, if peer production is important to tapping human capital efficiently.

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