Philipp J.H. Schröder

The Economics of Open Source Software Development

Publisher Summary This chapter introduces the fundamentals of Open Source Software (OSS), its nature, the central economic aspects and the key mechanisms of its development. It captures the most important lines of research dealing with the economics of OSS and its development. Research on these issues has made substantial progress in recent years, both in identifying particularities and in offering explanations for them. OSS is mainly programmed by volunteers who engage in such projects free of charge. The perplexing particularities such as volunteer programmers, free availability and the emergence of OSS-based for-profit firms create the backdrop for examining central research questions on the OSS phenomenon.. It discusses a primer on OSS and the surrounding development process including a sketch of how OSS-related activities actually generate revenues. The chapter addresses issues such as the motivation of for-profit firms in their participation in OSS, their relation to OSS communities, nature of sustainable OSS-based business models, and the innovation performance of OSS, addressing issues such as the innovation incentives for further developing an operating system or software applications for an operating system, and the impact of OSS competition on the willingness to innovate in software industries featuring highly concentrated market structures.

Bug-Fixing and Code-Writing: The Private Provision of Open Source Software

Open source software (OSS) is a public good. A self-interested individual would consider providing such software, if the benefits he gained from having it justified the cost of programming. Nevertheless each agent is tempted to free ride and wait for others to develop the software instead. This problem is modelled as a war of attrition with complete information, job signaling, repeated contribution to the public good and uncertainty in programming. The resulting game does not feature any delay: software will be provided swiftly, by young, low-cost individuals who gain considerably by signaling their programming skills; the startup (and collapse) of an OSS project displays bandwagon dynamics.

International Migration with Heterogeneous Agents: Theory and Evidence

International migration is characterized by two puzzling facts: First, only a small share of the population tends to migrate although substantial and persisting income differences across countries exist. Second, net migration rates tend to cease over time despite persisting income differences. This paper addresses these issues in a migration model with heterogeneous agents that features temporary migration. In equilibrium a positive relation exists between the stock of migrants and the income differential, while the net migration flow becomes zero. Consequently, existing empirical migration models, estimating net migration flows instead of stocks, may be misspecified. This suspicion appears to be confirmed by our empirical investigation of the cointegration relationships of German migration stocks and flows since 1967. We find that (i) panel-unit root tests reject the hypothesis that migration flows and the explanatory variables are integrated of the same order, while migration stocks and the explanatory variables are all I(1) variables, and (ii) the hypothesis of cointegration cannot be rejected for the stock model.

Export Market Exit and Firm Survival: Theory and First Evidence

This paper deploys a dynamic extension of the Melitz (2003) model to generate predictions on export market exit and firm survival in a setting where firms endogenously make exit decisions. The central driver of the model dynamics is the inclusion of exogenous economy wide technological progress. The model predicts – inter alia – that a higher relative productivity not only increases the likelihood of exporting, but also the chances of firm survival and continued export market engagements. We relate these predictions to the empirical stylized facts of export market exit and firm survival based on Danish firm-level data. We find strong evidence that firms experience a decline in market share prior to export market exit and prior to death and that the firms discontinuing their exporting activity or closing down tend to be small. Overall, our empirical results support the central predictions from the model.

The Impact of Entry and Competition by Open Source Software on Innovation Activity

This paper presents the stylized facts of open source software innovation and provides empirical evidence on the impact of increased competition by OSS on the innovative activity in the software industry. Furthermore, we introduce a simple formal model that captures the innovation impact of OSS entry by examining a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The paper identifies a pro-innovative effect of OSS competition.

Tariffs and Firm-Level Heterogeneous Fixed Export Costs

Abstract This paper presents a two-country intra-industry trade model with bilateral ad valorem tariffs and fixed export costs that are heterogeneous across firms. In this model not all firms will choose to export. We examine the effects of reciprocal changes in the tariff and the fixed export barrier on the number of firms, firm profits, tariff revenue and consumer welfare. We show that both types of trade barriers reduce (increase) the number of exporting (pure domestic) firms. However, the sum of available home and foreign varieties increases for small tariffs. Firm profits are falling in both tariff and fixed export cost barriers. Tariff revenue falls when fixed export costs increase whereas we have a Laffer curve effect for the tariff. Welfare falls when fixed export costs increase and increases for small tariffs and falls for large tariffs, i.e. there exists a welfare maximizing tariff.

Market Access through Bound Tariffs

WTO negotiations deal predominantly with bound - besides applied - tariff rates. But, how can reductions in tariffs ceilings, i.e. tariff rates that no exporter may ever actually be confronted with, generate market access? The answer to this question relates to the effects of tariff bindings on the risk that exporters face in destination markets. The present paper formalizes the underlying interaction of risk, fixed export costs and firms’ market entry decisions based on techniques known from the real options literature; doing so we highlight the important role of bound tariffs at the extensive margin of trade. We find that bound tariffs are more effective with higher risk destination markets, that a large binding overhang may still command substantial market access, and that reductions in bound tariffs generate effective market access even when bound rates are above current and long-term applied rates.

Doorkeepers and Gatecrashers: EU Enlargement and Negotiation Strategies

This paper discusses the eastward enlargement process of the EU in the framework of a simple ‘war of attrition’ bargaining game. Both players – the existing EU members and the applicants – benefit from enlargement, yet for the applicants, reform to the acquis is costly, while the EU prefers substantially reformed candidates. A waiting game unfolds. Within this framework the present enlargement round is analysed and policy results are deduced. For example, it is shown that delegating the evaluation of applicants to a third party, compensating applicants for their reform efforts or increasing the benefits for new members are all effective negotiation strategies for the EU that have been applied in the process.

A Welfare Ranking of Multilateral Reductions in Real and Tariff Trade Barriers when Firms are Heterogenous

Trade liberalization comes about through reductions in various types of trade barriers. This paper introduces, apart from the customary real trade costs (i.e. iceberg and fixed export costs), two revenue generating trade barriers (i.e. an ad valorem tariff and a trade license) into a standard heterogeneous-firms-trade model with Pareto distributed productivities. We derive analytical welfare rankings of all four liberalization channels for an equal effect on two openness measures, for any trade cost level and while all four barriers are simultaneously present, i.e. for any initial equilibrium. We show that when openness is measured at retail prices, not border prices, the welfare rankings are sensitive to the degree of efficiency in revenue redistribution, e.g. the share of tariff revenues wasted on rent-seeking activities. As a result, multilateral tariff reductions can switch from the least to the most preferred mode of liberalization. Among the other three barriers we establish a universal welfare ranking for any strictly positive level of revenue redistribution and for either measure of openness.

Second thoughts on the exporter productivity premium

Contrary to the prevailing interpretation, this paper shows that the central models of trade with heterogeneous firms ( Melitz 2003 ; Bernard et al. 2003 ) exhibit ambiguous predictions for the exporter productivity premium. This prospect arises because of differences between theoretical and empirical representations of firm productivity. Instead of marginal productivity, we examine in both models the theoretical equivalent of empirically observable productivity (value-added per employee). Given the presence of fixed export costs or heterogeneous mark-ups and trade costs, the observable productivity of exporters in proximity to the export-indifferent firm turns out to be lower than that of non-exporters; that is, the productivity distributions overlap. The paper reviews empirical literature that reports non-positive exporter productivity premia in firm-level data and discusses implications for empirical research on exporter performance, including learning and the role of non-parametric regressions (stochastic dominance, quantile regressions), fixed costs, and productivity distributions.