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PENGUIN_FIRM

                                   July 25, 2003

Quotations from the Yochai Benkler paper
"Coase's Penguin, or Linux and the Nature of the Firm"
(see benkler.org):

       "In the late 1930s, Ronald Coase wrote his article,
       The Nature of the Firm, 5 in which he explained why
       firms clusters of resources and agents that interact
       through managerial command systems rather than
       markets emerge. In that paper Coase introduced the
       concept of transaction costs that is, that there are
       costs associated with defining and enforcing
       property and contract rights which are a necessary
       incident of organizing any activity on a market
       model.  Coase explained the emergence and limits of
       firms based on the differences in the transaction
       costs associated with organizing production through
       markets or through firms. People would use the
       markets when the gains from doing so, net of
       transaction costs, exceed the gains from doing the
       same thing in a managed firm, net of the
       organization costs. Firms would emerge when the
       opposite was true. Any individual firm would stop
       growing when its organization costs exceeded the
       organization costs of a newly formed, smaller firm."

   And further:

       "The emergence of free software as a substantial
       force in the software development world poses a
       puzzle for this conception of organization
       theory. Free software projects do not rely either on
       markets or on managerial hierarchies to organize
       production.  Programmers do not, generally,
       participate in a project because someone who is
       their boss told them to. They do not participate in
       a project because someone offers them a price to do
       so. I will spend substantial space in this article
       explaining why peer-production processes appear to
       respond mostly to cues other than price
       signals. Some participants may indeed be focused on
       long-term appropriation through money-oriented
       activities like consulting or service contracts. But
       the critical mass of participation in projects, at
       any given level of activity, cannot be explained by
       the direct presence of a price that differentiates
       different projects and effort levels. In other
       words, programmers participate in free software
       projects without following the normal signals
       generated by market-based, firm-based, or hybrid
       models."

   So, Benkler is not saying that he has proof that
   "rational acting" money-grubbing greedy bastards
   are lame and cause more harm than good.

                             (whew, that's a relief, eh?)

   He's talking about a problem in social
   organization. Previously economists have
   focused on two ways of organizing things:

    1. direct command and control by
       centralized management, aka
       "the firm".

    2. competition between firms,
       controlled by the "invisible
       hand" of the market.

   If Gnu, Apache, Linux, etc. fit into
   either of those two categories, it
   is not easy to see how.

   If there are other examples of sucessful
   products being produced in a similar
   cooperative manner -- as there probably are --
   Benkler seems to be saying that economists
   have not paid sufficient attention to them.

   Let me try a simple, general thesis here:

   Social organization is influenced
   by available technologies of          That doesn't sound
   communication and transportation.     like too much of a
                                         stretch does it?

                                         It's generally accepted that
                                         the viable size of a nation
                                         state was smaller in the days
                                         of the ancient greeks than it
                                         is now.


    So it would seem that a radical
    change in our communication
    technology -- like, oh, say, the
    development of the internet --
    might change the kind of
    cooperative organizations that
    are viable.                            Yes, it's the new new economy.
                                           Same as the old new economy.





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