Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market
Klaus M. Schmidt
Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)
University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)
July 12, 2002
This paper discusses the economic merits of direct or indirect governmental support for open source projects. Software markets differ from standard textbook markets in three important respects that may give rise to market failures: (i) large economies of scale, (ii) crucially important innovations, (iii) significant network effects and switching costs. We analyze the differences between proprietary software and open source software with respect to these market features and ask whether open source as an alternative to proprietary software can mitigate these problems. Then we discuss the implications of various forms of governmental support for open source.
Number of Pages in PDF File: 37
Keywords: Software Market, Open Source, Public Goods, Innovation Incentives, Public Subsidies
JEL Classification: H41, O31, O38
Date posted: August 22, 2002
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