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Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market

Klaus M. Schmidt
Ludwig Maximilians University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)

Monika Schnitzer
University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)

July 12, 2002

Abstract:
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.

Keywords: Software Market, Open Source, Public Goods, Innovation Incentives, Public Subsidies

JEL Classifications: H41, O31, O38

Working Paper Series

Date posted: August 22, 2002 ; Last revised: April 15, 2003

Suggested Citation

Schmidt, Klaus M. and Schnitzer, Monika, Public Subsidies for Open Source? Some Economic Policy Issues of the Software Market (July 12, 2002). Available at SSRN: http://ssrn.com/abstract=319081 or doi:10.2139/ssrn.319081

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Contact Information

Klaus M. Schmidt (Contact Author) Ludwig Maximilians University of Munich - Faculty of Economics ( email ) Ludwigstrasse 28 D-80539 Munich Germany +49 89 2180 3405 (Phone) +49 89 2180 3510 (Fax)
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany HOME PAGE: http://www.CESifo.de
Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom
Monika Schnitzer University of Munich - Department of Economics ( email ) Ludwigstrasse 28 D-80539 Munich Germany +49 89 2180 2217 (Phone) +49 89 2180 2767 (Fax)
Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom