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Networks of Tinkerers:

a Model of Open-Source Innovation

Peter B. Meyer BLS brown bag seminar,

March 15, 2006

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IntroductionHobbyists have developed important technology.

open source software Linux; email processing; Web servers/browsers

personal computers Homebrew Club of hobbyists, circa 1975

airplanes – a clearly documented case

Goal here: try some assumptions about the hobbyists / tinkerersshow they would share information in networksexplore assumptions a bit

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Aircraft developmentsFrom the 1870s to the 1900s there is a lot of “open-source” innovation in aircraft

1800 – George Cayley and many others try aeronautical experiments

starting 1870s, several aeronautical journals

1893 Octave Chanute’s Progress in Flying Machines

1903 – Wrights fly

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Assumptions for micro model Assume there are motivated tinkerers

We do observe this Assume they have a way to make

“progress” defining progress carefully

Assume total technological uncertainty No market is identifiable so no R&D / competition

The tinkerers would share information

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The Tinkerer

U t 0

tat

Tinkerer has activity/hobby A. (for “aircraft” or “activity”)

Tinkerer receives positive utility from A of at per period.• a0 is known• later choices and rules determine at

β is a discount factor between zero and one (assume .95) applied to future period utility.Net present expected utility:

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Tinkering rules Tinkerer may invest in ("tinker with") A The agent thinks that tinkering this

period will raise all future period payoffs at by p units each time period. p stands for a rate of progress, which is

subjectively experienced by the agent We assume p is fixed and known to the

agent Example: .07

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Tinkering decision

p p 2 p 3 p 4 p1

Tinkerer compares those gross benefits to the cost which is 1 utility unit

Tinkerer weights estimated costs and benefits

Benefits from one effort to tinker equal p in each subsequent period.

The present value of those payoffs is:

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Rates of Progress

p 1

Progress must meet the criterion above for tinkering to be worth it

Progress is subjective

There are not many tinkerers working on this activity who can make this much progress.

More issues later.

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Payoffs from endless tinkering

Payoffsperiod 0 period 1 period 2 period 3 period 4 …

-1 p p p p(pβ/[1-

β] )

-1 p p p β()

-1 p p β β ()

-1 p β β β()

-1 . . . a0-1 a0-1+p a0-1+2p a0-1+3p a0-1+4p a0-1+tp

a01 1

1 p1 2

Present value of all that at time

zero has a closed form:

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A network of two tinkerers

U0 a01 1

1 p1 fp21 2

Case of two tinkerers with identical utility functions p1 and p2 – subjective rate of progress Their innovations are useful to one

another Tinkerers form a network Present value of expected utility:

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Subgroups of occasional tinkerers

A group of slow-progress tinkerers might agree to work together to generate progress rate p.

Then the group acts like a single “tinkerer” in terms of its output

and also in its incentive to join other groups There are something like economies of scale here;

it’s a positive sum game. So Wilbur and Orville Wright could be one tinkerer maybe also:

Boston-area group All readers of a certain journal Kite people, together, as distinguished from balloon

people

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“Progress” is subjective

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Standardization and Specialization

U0 a01 1

1 cs p1 f2p2

1 2

Only the fraction f (between 0 and 1) of experiments by player two are usable to player one

Suppose for a cost cs player one can adjust his project to look more like the other tinkerer’s project

And, that this would raise the usable findings to f2

That’s standardization Present value of utility from standardizing is:

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Standardization and Specialization

Key comparison is above Player one benefits more from

standardizing if, ceteris paribus: the other tinkerers are producing a large flow of innovations p2; the cost of standardizing cs is small; the gain in useful innovations from the others (f2-f) is large.

Same logic supports specialization These are technology phenomena, not requiring

market processes

p2f2 f1 2

cs

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Searching and Joining Suppose there is a cost to joining the network

costs of subscribing, paying attention it’s worth the cost to a tinkerer if

the cost (cj) is low he values future outcomes a lot the others are producing a lot of progress (p) their progress is useful to him – f is high enough

Suppose there is also a cost to searching for new members Chanute wrote book others published journals Then the search costs affect innovative output (Web has

effect) There is a role for a special effort to expand the network Paper does not model this

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Entrepreneurial Exits At a few points there was tension:

Ader “drops out” in 1891 Langley keeps secret wing design after

1901. (Chanute shares it anyway.) Wrights stop sharing as much in late

1902 After some perceived of breakthrough Jobs and Wozniak start Apple

they hire Homebrew club people as employees Red Hat becomes a company

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Example exit: Clement Ader’s Eole

It traveled 50 meters in uncontrolled flight in 1891 French military thought it would be useful. Ader didn’t patent outside France because it would

expose details. Chanute criticized this choice. Ader “drops out” from prior communication links.

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Entrepreneurial exits from network

If a tinkerer has an insight into how to make a profitable product it may be worth leaving the network

conducts directed R&D becomes an entrepreneur enters economic statistics

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Conclusion This process may be important

explaining the rise of industrial countries a long time ago with open source software, now

I do not know of other models of it Key assumptions:

technological uncertainty (no clear product and market) motivated tinkerers some way to make progress some way to network

Search and matching costs take some more thinking An industry can spring out of this, not well modeled

yet