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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):


Quotations from a paper by Benkler:

     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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