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Calhoun: The NPS Institutional Archive Theses and Dissertations Thesis Collection 2009-12 Peer Production in the U.S. Navy enlisting Coase's Penguin Koszarek, William E. Monterey, California. Naval Postgraduate School http://hdl.handle.net/10945/4411 NAVAL POSTGRADUATE SCHOOL MONTEREY, CALIFORNIA THESIS PEER PRODUCTION IN THE U.S. NAVY: ENLISTING COASE'S PENGUIN by William E. Koszarek, III December 2009 Thesis Co-Advisors: Gary O. Langford Raymond Franck Second Reader: John P. Rummel Approved for public release; distribution is unlimited THIS PAGE INTENTIONALLY LEFT BLANK REPORT DOCUMENTATION PAGE Form Approved OMB No. 0704-0188 Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instruction, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188) Washington DC 20503. 1. AGENCY USE ONLY (Leave blank) 2. REPORT DATE 3. REPORT TYPE AND DATES COVERED December 2009 Master’s Thesis 4. TITLE AND SUBTITLE 5. FUNDING NUMBERS Peer Production in the U.S. Navy: Enlisting Coase's Penguin 6. AUTHOR(S) William E. Koszarek III 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING ORGANIZATION Naval Postgraduate School REPORT NUMBER Monterey, CA 93943-5000 9. SPONSORING /MONITORING AGENCY NAME(S) AND ADDRESS(ES) 10. SPONSORING/MONITORING N/A AGENCY REPORT NUMBER 11. SUPPLEMENTARY NOTES The views expressed in this thesis are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. Government. 12a. DISTRIBUTION / AVAILABILITY STATEMENT 12b. DISTRIBUTION CODE Approved for public release; distribution is unlimited. 13. ABSTRACT (maximum 200 words) Peer Production is an emerging model in the information age. It takes advantage of greatly reduced transaction costs enabled by the combination of a networked information economy and ubiquitous personal computing power. This thesis outlines why this new model is so significant to the U.S. Navy. This is done in part through modeling and simulation in ARENA. The model demonstrates how incomplete specification of agent talent and task difficulty adversely affect traditional firm production and cause both cost and schedule overruns as well as project failure. Modeling the peer production process demonstrates how a significant portion of these shortcomings are overcome in the new economic model. The model also quantifies the significant gains in efficiency, higher probability of success, increased rate of innovation, and reduced cost result from PP. Finally, we present a first look at how peer production can be systematically applied and reapplied successfully—through a stakeholder analysis and functional decomposition. By combining the model with the theoretical understanding of PP presented here, the Navy will be able to apply peer production in numerous areas, to include: advertising, recruiting, maintenance, casualty response, family services, health care, R&D, and ship construction. 14. SUBJECT TERMS: Peer Production, Crowd Sourcing, Collaboration, Web 2.0, Peer to peer, P2P 15. NUMBER OF PAGES 163 16. PRICE CODE 17. SECURITY 18. SECURITY 19. SECURITY 20. LIMITATION OF CLASSIFICATION OF CLASSIFICATION OF THIS CLASSIFICATION OF ABSTRACT REPORT PAGE ABSTRACT Unclassified Unclassified Unclassified UU NSN 7540-01-280-5500 Standard Form 298 (Rev. 2-89) Prescribed by ANSI Std. 239-18 i THIS PAGE INTENTIONALLY LEFT BLANK ii Approved for public release; distribution is unlimited PEER PRODUCTION IN THE U.S. NAVY: ENLISTING COASE'S PENGUIN William E. Koszarek III Lieutenant Commander, United States Navy B.A., Chemistry, North Carolina State University, 1999 Submitted in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE IN SYSTEMS ENGINEERING from the NAVAL POSTGRADUATE SCHOOL December 2009 Author: William E. Koszarek III Approved by: Gary O. Langford Thesis Advisor Raymond Franck, PhD Co-Advisor John P. Rummel Second Reader Cliff Whitcomb, PhD Chairman, Department of Systems Engineering iii THIS PAGE INTENTIONALLY LEFT BLANK iv ABSTRACT Peer Production is an emerging model in the information age. It takes advantage of greatly reduced transaction costs enabled by the combination of a networked information economy and ubiquitous personal computing power. This thesis outlines why this new model is so significant to the U.S. Navy. This is done in part through modeling and simulation in ARENA. The model demonstrates how incomplete specification of agent talent and task difficulty adversely affect traditional firm production and cause both cost and schedule overruns as well as project failure. Modeling the peer production process demonstrates how a significant portion of these shortcomings are overcome in the new economic model. The model also quantifies the significant gains in efficiency, higher probability of success, increased rate of innovation, and reduced cost result from PP. Finally, we present a first look at how peer production can be systematically applied and reapplied successfully—through a stakeholder analysis and functional decomposition. By combining the model with the theoretical understanding of PP presented here, the Navy will be able to apply peer production in numerous areas, to include: advertising, recruiting, maintenance, casualty response, family services, health care, R&D, and ship construction. v THIS PAGE INTENTIONALLY LEFT BLANK vi TABLE OF CONTENTS I. PREFACE.....................................................................................................................1 A. ORIGIN OF THIS RESEARCH ....................................................................1 B. HOW TO PROCEED......................................................................................2 II. INTRODUCTION........................................................................................................3 A. DEFINITION OF PEER PRODUCTION.....................................................3 B. EXAMPLES OF PEER PRODUCTION.......................................................3 C. TYPES OF PEER PRODUCTION ................................................................6 D. CLASSES OF PEER PRODUCTION ...........................................................9 E. OVERVIEW OF ECONOMIC PRINCIPLES ...........................................11 1. What Makes PP Possible...................................................................11 2. Why Individuals Contribute. ............................................................11 3. How Individuals Decide What to Do................................................12 F. THE SIGNIFICANCE OF PEER PRODUCTION....................................13 III. HISTORICAL PERSPECTIVE...............................................................................15 A. THE BIRTH OF THE TERM "PEER PRODUCTION"..........................15 B. THE BIRTH OF PEER PRODUCTION TECHNIQUES.........................15 C. MODERN PEER PRODUCTION TIMELINE..........................................17 IV. ECONOMICS OF PEER PRODUCTION..............................................................25 A. ECONOMIC ACCOMPLISHMENTS........................................................25 B. ECONOMIC BACKGROUND ....................................................................26 C. ECONOMIC SHIFT......................................................................................29 D. A NEW MODEL OF PRODUCTION .........................................................30 E. ECONOMIC PLAYERS...............................................................................31 F. VALUE CHAINS...........................................................................................33 G. IN DEPTH ANALYSIS OF MARKETS, FIRMS AND PEER PRODUCTION ..............................................................................................35 1. Creating Value ...................................................................................36 2. Being Productive ................................................................................37 3. Job Specification ................................................................................39 4. Inefficiencies .......................................................................................40 5. Surplus of Workforce ........................................................................40 6. Parallel vs. Serial Task Accomplishment.........................................42 7. Task Duplication ................................................................................42 8. Ownership...........................................................................................42 H. ECONOMIC CONCLUSION.......................................................................43 V. PSYCHOLOGY OF PEER PRODUCTION...........................................................45 A. WHY DO PEERS PRODUCE?....................................................................45 B. HOW IS PRODUCTION PROMOTED?....................................................49 VI. PHILOSOPHY OF PEER PRODUCTION ............................................................55