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

Yochai Benkler https://www.benkler.org/CoasesPenguin.PDF

• Mentioned on p. 88 of Plurality Books.

This paper analyzes a new model of information production called [[peer production]] (peer production). The main points are as follows:. - Peer production is a model in which many individuals voluntarily cooperate to produce information goods, a phenomenon seen in free software development. 2. this model is made possible by the declining cost of physical capital and the growing importance of human capital. 3. peer production has an advantage over markets and companies in matching human and information resources. 4. diversity of motivation and modularity/granularity of projects are important. 5. providing integrated functionality is a challenge, but can be addressed through technological solutions and iterative peer production processes. 6. strengthening [[intellectual property rights]] may discourage peer production. 7. businesses and policy makers need to understand the potential of this model and respond appropriately.

The paper points to the potential for peer production to play an important role in the information economy and argues for further research and institutional support.

“Peer production has an advantage over markets and firms in matching human and information resources.” Elaborating on the

The paper explains this point as follows

1. diversity of human capital:

   • Individuals’ abilities, knowledge, experience, and creativity are so diverse that it is difficult to find the best person for a particular task. Peer production provides access to a broad talent pool, making it easier to find the right person.

2. mechanism of self-selection:

   • Peer production allows participants to select tasks based on their interests and abilities. This allows for matching each individual to the task that best fits his or her abilities and motivation.

3. elimination of information asymmetry:

   • While companies and markets have incomplete information about individuals’ abilities and aptitudes, peer production mitigates this problem because individuals participate based on their own self-assessment.

4. flexibility and adaptability:

   • Peer production is flexible and responsive to changing project requirements and participant circumstances. This is superior to firms or markets based on fixed contracts or hierarchical structures.

5. reduction of transaction costs:

   • Peer production allows for more efficient resource allocation due to lower costs associated with recruiting, contracting, and managing participants.

6. economies of scale:

   • Peer production can tackle larger and more complex projects by involving a large number of participants. This can be difficult for a single firm or a limited number of market participants.

7. promote innovation:

   • When participants from diverse backgrounds work together, new ideas and solutions are more likely to emerge. This is an advantage over firms with homogeneous organizational structures.

It is argued that these factors may make peer production more efficient than markets and firms with respect to matching human and information resources, especially in the production of information goods.

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