COOPERATIVE INVESTMENT DECISIONS IN COMMUNITY SOURCE DEVELOPMENT

Abstract

Community source development has emerged as a new way of developing enterprise applications, leading to a unique type of open source development involving collaborative investment decisions by multiple institutional partners. A critical research question is what motivates partnering institutions to invest jointly in community source development, knowing that the result will become open source. We study this research question by investigating cooperative behaviors among partner institutions involved in community source such as Kuali. We apply option pricing to model cooperative investment decisions under uncertainty with the Black–Scholes (BS) model in comparison with the net present value (NPV) approach. Our analytical results reveal that several institutional characteristics such as size, financial power, and IT capability affect how institutions make cooperative decisions in community source development regardless if either the BS model or the NPV approach is used as the utility function. These business insights help deepen the understanding of the emerging community source phenomenon.