The Limits of Economic Self-interest The Case of Open Source Software Jeffrey P. Powell The Limits of Economic Self-interest The Case of Open Source Software Proefschrift ter verkrijging van de graad van doctor aan de Universiteit van Tilburg op gezag van de rector magnificus, prof.dr. Ph. Eijlander, in het openbaar te verdedigen ten overstaan van een door het college voor promoties aangewezen commissie in de aula van de Universiteit op maandag 20 december 2010 om 10:15 uur door Jeffrey Parker Powell, geboren op 24 juli 1962 te San Francisco, USA. Promotor: Prof.dr. J.F. Hennart Promotiecommissie: Prof.dr. S.W. Douma Prof.dr. J.J. Graafland Prof.dr. N.G. Noorderhaven Prof.dr. B. Nooteboom Acknowledgments The four years I spent writing this thesis at Tilburg were very enjoyable. I was essentially left to my own devices to formulate and implement a research project. My research question was originally inspired by an encounter in the dormitory cafeteria at the university where I was a freshman undergraduate student. A fellow economics student observed that he didn't think that it was right that students with mobility disabilities were given golf carts by the university to help them get around campus. He reasoning was that is was acceptable that student athletes get golf carts upon receiving injuries because they can further contribute to the coffers of the university, however, those with disabilities can’t make such contributions and therefore shouldn't receive any special treatment. Such calculative reasoning is indicative of a type of self-interest that is common and acceptable within standard economic theory. Economic man is often portrayed as non-ethical and as pursuing aims which are narrowly focused on a very select set of interests. But why have economists saddled themselves with such a narrow and mean view of human nature? Answering that question involves establishing the limits of self-interest in economic reasoning, the subject I attempt to address in the following pages. The contention presented is that such a limited view of motivation causes economists to misidentify important economic phenomena. Economics is often identified as the study of self-interest and rationality. I concentrate on the role of self-interest in economic theory and determining precisely what it means to be economically self- interested. What self-interest entails is a fundamental question in many disciplines, particularly in ethics; therefore, my approach has been to analyze economic interpretations of self-interest through the theoretical lens of ethics. Given the breadth of the topic, my more limited aim has been to set the broad boundaries of economic self-interest. I would like to take the opportunity to thank several people who have helped me during the process of completing this manuscript. Thanks to professors Barkema and Hennart for allowing me to enter the economics program at Tilburg. I thank professors Douma and Noorderhaven for offering support when it was most needed. Thanks to professors Graafland and Nooteboom for their close reading of the manuscript and helpful comments. In particular, the last two pushed for clarity and precision, together they have made this a much better manuscript. Most importantly, I would also like to thank my extended family, particularly professor Roeser, whose unwavering support and encouragement gave me the energy to complete this manuscript. Finally, I would like to thank my parents, who endowed in me the joy of learning. Contents Problem Statement ..................................................................................... 1 Does it Matter?........................................................................................... 3 Practical and Theoretical Implications................................................... 3 Normative Significance.......................................................................... 6 Proposed Motives of Open Source Contributors ....................................... 7 Internal Motivation................................................................................. 8 External motivation................................................................................ 9 Contribution ............................................................................................. 11 Methodology ............................................................................................ 12 Introduction.............................................................................................. 17 Basics of Self-Interest .............................................................................. 17 Dimensions of Self-interest...................................................................... 20 Structural Dimension ........................................................................... 21 External Dimension.............................................................................. 23 Characteristics of Self-interest ................................................................. 24 Instant Hedonism ................................................................................. 25 Pure Egoism ............................................................................................. 26 Prisoner's Dilemma and Pure Egoism.................................................. 27 Self-Interest Theory ................................................................................. 30 Practical Egoism and Altruism ................................................................ 32 Instrumental Egoism ................................................................................ 33 Sacrificing Interests.................................................................................. 36 CHAPTER TWO: ALTRUISM AND ALTERNATIVES TO SELF- INTEREST ............................................................................................................ 39 Introduction.............................................................................................. 39 Particular Affections ............................................................................ 39 Duties ................................................................................................... 41 Special Relationships ........................................................................... 42 Natural Altruism................................................................................... 43 Thomas Nagel's Possibility of Altruism............................................... 45 Altruism ................................................................................................... 46 Practical Examples................................................................................... 53 Identifying Motivation ............................................................................. 56 Focus of an Action ................................................................................... 57 Agent Uncertainty and Self-Deceit and Community Standards .............. 58 When is an act altruistic? ......................................................................... 60 Pseudo-altruism........................................................................................ 61 The Duration of an Act ............................................................................ 62 Discussion and Conclusions..................................................................... 64 CHAPTER THREE: SELF-INTEREST IN ECONOMIC ANALYSIS.......... 67 Introduction.............................................................................................. 67 Section One: The First Principle of Economics? ..................................... 68 Self-interest in Economics ................................................................... 68 Preference Theory................................................................................ 73 Instrumental and Scientific Realism .................................................... 77 The Purview of Economic Analysis......................................................... 81 Two Models That Assume Self-interest................................................... 82 Transaction Cost Economics................................................................ 83 Agency Theory..................................................................................... 89 Conclusions Chapter Three...................................................................... 92 CHAPTER FOUR: DIMENSIONS OF SELF-INTEREST.............................. 95 Introduction.............................................................................................. 95 Structural Dimension Of Self-interest...................................................... 95 Psychological Egoism .......................................................................... 97 Normative Approaches....................................................................... 105 Other Approaches............................................................................... 114 External Dimension of Self-interest....................................................... 116 Parfit's Objectives of Self-interest...................................................... 118 Some General Aims ........................................................................... 123 Regard for Others............................................................................... 126 Conclusions............................................................................................ 130 CHAPTER FIVE: TRACING THE FOUNDATIONS