Platform-based open source software development under double moral hazard

This is the authors' abstract. We don't add key points for this paper.

The Open Source Software (OSS) model has emerged as a dominant digital interface for knowledge creation. However, the OSS project owner and contributors form a relationship which is subject to double-sided ‘hidden action’ moral hazard. We formalise this situation using a simple principal-agent model containing two key features of decentralised platform-based open-source innovations: double moral hazard and limited individual rationality under which we introduce an additional participation constraint allowing for low-cost input in OSS collaborations. Our findings reveal that an OSS contributor is prone to moral hazard behaviours such as free riding if private incentives faced by the agent are not aligned with the interests of the project. From the perspective of the principal, moral hazard behaviours can also emerge with the incentives arising from several primary activities. Our study provides an important theoretical basis for understanding the source of market failures in open innovation processes and the mechanism that can potentially curb risk-taking incentives. This research contributes nuanced perspectives on policy responses, experiment designs, and the socio-economic implications of open-source innovations.