Subject: Re: economic efficiency of free software
From: Russell Nelson <nelson@crynwr.com>
Date: Thu, 5 Feb 2004 16:12:04 -0500

Kragen Sitaker writes:
 > Here's a naive economic argument that spending money on free software
 > is more efficient than spending it on proprietary software.  Perhaps
 > there are some good ideas in here, but I don't know enough about
 > economics to be able to judge.

Acckkkpththththt, Kragen!  You're not supposed to admit naivete about
economics!  When was the last time you heard anybody say "I Am Not An
Economist" in the same way they say IANAL?  Anyway, thank you for
having done so, it's very refreshing.

 > 90% profit margins induced by copyright-based monopoly ultimately mean
 > that less than the ideal amount of effort goes into improving software,
 > and less than the ideal number of users benefit from the software.  

You're neglecting two effects: first is that not all software is
successful in the sense that it attracts sufficient users to fund
future development.  Somebody has to pay for the initial development
of that software.  In the open source world, it is the person who
writes it in the first place.

Secondly, price conveys more than money.  It also conveys information.
Information about what software is needed, and what is not.  For
example, the price of Microsoft BoB has in essence dropped to zero,
because nobody wants it.  It may be that Open Office will force
Microsoft to drop its price.  In time, Microsoft may decide that it
should not invest farther in word.  Their level of profits tells them
what software they should write.  The open source world doesn't have
the price signal.

 > then the extra 90% is market friction.  The users would be much better
 > off if they could give $50 million directly to the Word developers,
 > perhaps through an administrative organization like the United Way that
 > added on 30% for administrative costs.

United Way??  How about suggesting the Public Software Fund?  :-)

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