Informational Hold-Up, Disclosure Policy, and Career Concerns ontheExample of Open Source Software Development

We consider software developers who can either work on an open sourceproject or on a closed source project. The former provides a publiclyavailable signal about their talent, whereas the latter provides asignal only observed by their employer. We show that a talented employeemay initially prefer a less paying job as an open source developer tocommercial closed source projects, because a publicly available signalgives him a better bargaining position when renegotiating wages with hisemployer after the signal has been revealed. Also, we derive conditionsunder which two effects suggested by standard intuition are reversed: a'pooling equilibrium' (with both talented and untalented workers doingclosed source) is less likely if differences in talent are large; ahighly visible open source job leads to more effort in a career concernssetup. The former effect is because a higher productivity of talentedworkers raises not only the value but also the cost of signaling; thelatter stems from more effort and the choice of a high visibility jobbeing substitutes for the purpose of signaling. Results naturally applyto other industries with high and low visibility jobs, e.g. academicrather than commercial research, consulting rather than management.