Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development

37 Pages Posted: 20 Oct 2008

See all articles by Marc Blatter

Marc Blatter

University of Bern

Andras F. Niedermayer

University of Mannheim - Department of Economics

Date Written: September 1, 2008

Abstract

We consider software developers who can either work on an open source project or on a closed source project. The former provides a publicly available signal about their talent, whereas the latter provides a signal only observed by their employer. We show that a talented employee may initially prefer a less paying job as an open source developer to commercial closed source projects, because a publicly available signal gives him a better bargaining position when renegotiating wages with his employer after the signal has been revealed. Also, we derive conditions under which two effects suggested by standard intuition are reversed: a pooling equilibrium (with both talented and untalented workers doing closed source) is less likely if differences in talent are large; a highly visible open source job leads to more effort in a career concerns setup. The former effect is because a higher productivity of talented workers raises not only the value but also the cost of signaling; the latter stems from more effort and the choice of a high visibility job being substitutes for the purpose of signaling. Results naturally apply to other industries with high and low visibility jobs, e.g. academic rather than commercial research, consulting rather than management.

Keywords: Open source software, signaling

JEL Classification: C70, L86

Suggested Citation

Blatter, Marc and Niedermayer, Andras Ferenc, Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development (September 1, 2008). NET Institute Working Paper No. 08-06. Available at SSRN: https://ssrn.com/abstract=1285747 or http://dx.doi.org/10.2139/ssrn.1285747

Marc Blatter

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Andras Ferenc Niedermayer (Contact Author)

University of Mannheim - Department of Economics ( email )

Mannheim 68131
Germany

HOME PAGE: http://andras.niedermayer.ch

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