NET Institute Working Paper #08-06, September 2008
This paper evaluates open source systems where employees work on publicly-reviewable projects for little to no pay.
This article helps explain why the open source system should be utilized in the software industry.
A talented software developer has an incentive to work on an open source project in order to make his talent observable to all employers rather than only his own. This improves his bargaining position after the signal about his talent has been revealed.
By letting employees work on open source projects, firms can credibly commit to pay high future wages for talented programmers.
This paper provides a model that yields results expected by intuition except for the following two key results: (1) it is more likely that talented programmers choose to do open source development if there is a large productivity difference between talented and untalented programmers and (2) working in a highly visible open source job leads to a higher effort level in a setup where future employers cannot distinguish whether success is due to effort or talent.