Affiliated Organization

Helsinki School of Economics, Finland


In our paper, individual programmers participate in OS programming to signal their programming skills to commercial software companies and companies use OS projects as a screening device for hiring new workers. The key feature of the model is that the signaling activity itself creates a market externality affecting the commercial software companies profiÂ…ts as the signaling activity creates a program that will be freely available to consumers. We show that in the least cost separating equilibrium, the programming credential in the case of a free substitute (complement) OS software is lower (higher) than in the case of independent programs. We also show that for the software companies' management, OS projects may function as clever screening mechanisms for new workers without committing to hire anyone before they have actually shown their capability as a programmer. Finally, there is a conflict of interest between the private and social incentives over the choice of an OS project when the size of the market for consumer software is small; the society would prefer a substitute OS project rather than complement.