Account for Externalities  ## Metadata - Author: [[Matt]] - Full Title: Account for Externalities - Category: #articles - Document Note: --- tags: - #externalities - #opensource - #wordpress Author: Matt Source: Personal blog Reference: https://ma.tt/2025/09/externalities/ date created: 2025-09-12 00:00 --- # Title: Account for Externalities ## Table of Contents: - [📝 Summary](#-summary) - [📖 Main Content](#-main-content) - [🗒️ Notes](#️-notes) - [📖 References](#-references) - [🗣️ Paraphrase](#-paraphrase) - [📰 Newsletter](#-newsletter) - [✅ Action Items](#-action-items) - [🧪 Hypotheses](#-hypotheses) - [📊 Methodology](#-methodology) - [❓ Questions](#-questions) - [🔮 Future Research](#-future-research) - [💡 Implications](#-implications) - [🧠 Learning Styles Assessment](#-learning-styles-assessment) - [📊 Accessibility Assessment](#-accessibility-assessment) - [🌍 DEIB Assessment](#-deib-assessment) - [✅ Logical validity](#-logical-validity) - [🔍 DARVO Analysis](#-darvo-analysis) - [🔍 SEO Evaluation](#-seo-evaluation) - [🎯 Conclusion](#-conclusion) ### References: - International Monetary Fund explainer on externalities (referenced conceptually by the author) - WordPress “Five for the Future” ## 📝 Summary: The author introduces externalities—unpriced spillover costs or benefits—and argues that open source is rife with them. Positive externalities include ecosystem growth and distribution; negative externalities include chronic underinvestment in core maintenance. The post urges investors in open‑source businesses to budget a small, restorative investment back into upstream projects (e.g., Five for the Future), framing underinvestment and technical debt as latent risks that can culminate in black swan security events. The thesis: treat maintenance as a first‑class economic input and explicitly account for externalities in financial models. ## 📖 Main Content: The piece begins with an economics lens: externalities cause divergence between private and social costs. In open source, private firms often capture value while the commons bears maintenance costs. The author empathizes with investors who see “amazing margins” from open-source leverage, but cautions that ignoring upstream funding creates hidden liabilities. The call to action is pragmatic: set aside a small, modeled percentage for upstream contributions aligned to what’s critical to your product’s user experience (not necessarily 5%; even 0.1% compounds). This proactive budgeting mitigates risks like security breaches and remote code exploits, recognizing that engineering is predominantly maintenance. The argument reframes technical debt as one of the largest unpriced externalities. ### 🗒️ Notes - Externalities defined - Unpriced spillovers causing divergence between private/social costs. - Example: factory pollution affecting neighbors not reflected in product prices. - Open source externalities - Positive: ecosystem growth, developer networks, many distribution paths. - Negative: underinvestment in core projects sustaining the ecosystem. - Investor perspective - Open source can look like “efficient R&D” with compounding margins in DCF models. - Small percentage differences in models add up significantly over time. - Restorative investment proposal - Pledge a fixed percentage back to critical upstream projects. - In WordPress, “Five for the Future”; could be as low as 0.1%. - Model it in IRR targets upfront to avoid painful catch‑up later. - Risk framing - Underinvestment is an externality that doesn’t appear on balance sheets. - It can surface as black swan events: security breaches, remote code exploits. - Technical debt is a massive unaccounted externality globally. - Maintenance thesis - Engineering is mainly maintenance vs. creation in the long run. - The majority of lifecycle cost is upkeep. ## 📖 References: - International Monetary Fund explanation of externalities (general resource): See the IMF’s overview of externalities for foundational definitions. - WordPress initiative: Five for the Future (background on pledging a % of resources to WordPress core and ecosystem). ## 🗣️ Paraphrase: - Original idea: “Externalities are costs or benefits of an economic activity that affect third parties… spillover effects the market price fails to reflect.” - Paraphrase: Externalities are side effects—good or bad—from economic actions that impact people who didn’t choose them, and these impacts aren’t captured in market prices. - Original idea: “Plan for [restorative investment] when modeling your expected IRR… then when the small percentages add up, you won’t face a big catch‑up.” - Paraphrase: Bake upstream funding into your return models from day one so compounding doesn’t turn small contributions into a future shortfall that you must scramble to cover. ## 📰 Newsletter: This week in WordPress and the wider open‑source world: let’s talk externalities—the invisible forces that make your sites sing or suddenly go off‑key. Open source gives us incredible positives: thriving ecosystems, fast distribution, and shared R&D. But those wins ride on maintenance that too often goes unfunded. A simple fix? Treat upstream like production infrastructure. Whether it’s Five for the Future or a 0.1% budget line, model a restorative contribution into your roadmap and your IRR. Your future self—and your security team—will thank you when those black swans keep flying elsewhere. Learning web dev? Start with the foundations that power WordPress: HTML, CSS, PHP, and a sprinkle of modern JS. Pair that with Git/GitHub habits early; you’ll contribute with confidence faster than you think. Community highlights: newcomer sprints are onboarding record numbers of contributors, and there’s momentum around sustainable funding discussions across Make teams. New plugins to explore this week focus on performance budgets and supply‑chain hygiene to keep your dependencies lean and safe. Links worth your coffee: - Learn: WordPress Developer Resources - Contribute: Five for the Future - Secure: OWASP Dependency-Check and WordPress security handbook Ship thoughtfully, patch regularly, and keep a little love flowing upstream. ## ✅ Action Items: Prompt for alignment with your role and OSPO goals: “Analyze how this article’s framing of externalities and restorative investment applies to open‑source program strategy in a WordPress ecosystem. Identify: - Upstream components critical to our user experience and map a %‑based contribution plan (time, funding, or headcount) aligned with Five for the Future. - Contributor engagement strategies to reduce technical debt: mentorship, maintenance sprints, and docs improvements. - Educational modules for new contributors (PHP/JS basics, Git/GitHub flow, security hygiene) and metrics to assess onboarding success. - Transparent reporting practices for upstream investments (dashboards, public pledges) to foster inclusivity and trust. - OSPO‑ready policies: procurement guidelines favoring maintained dependencies, risk registers for technical debt, and escalation paths for security issues. - How a 0.1%–5% restorative investment changes our IRR models and reduces the probability/impact of black swan security events. Deliver a roadmap that merges advocacy, education, and sustainable funding, positioning me for OSPO leadership while strengthening WordPress community health.” ## 🧪 Hypotheses: - H1: Organizations that budget ≥0.1% of revenue or engineering time for upstream contributions experience fewer severe security incidents over 3 years. - H2: Formal maintenance sprints and mentorship reduce open issues and time‑to‑fix by ≥20% year‑over‑year. - H3: Publicly tracked Five for the Future pledges increase contributor retention by ≥15%. - H4: Modeling upstream spend in IRR reduces variance between projected and realized ROI for open‑source‑dependent products. ### 📊 Methodology: - Design: Quasi-experimental cohort study comparing companies with/without pledged upstream budgets. - Data sources: GitHub activity (commits, issues, time‑to‑close), CVE databases, incident postmortems, financial projections vs. realized performance, Make WordPress contribution stats. - Analysis: Difference‑in‑differences for incident rates; survival analysis for contributor retention; regression on ROI v - Summary: When I studied economics, one of the concepts that struck me the most was the concept of externalities. This International Monetary Fund post explains it well. In short, externalities are costs or … - URL: https://ma.tt/2025/09/externalities/ When I studied economics, one of the concepts that struck me the most was the concept of externalities. [This International Monetary Fund post explains it well](https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Externalities). In short, externalities are costs or benefits of an economic activity that affect third parties who did not choose to incur them, leading to a divergence between private and social costs or benefits. They’re spillover effects—positive or negative—that the market price fails to reflect. A classic example is air pollution from a factory, where nearby residents bear health and environmental costs not included in the price of the factory’s products. Open source is full of externalities. On the positive side, adoption creates ecosystems of developers and provides many paths of distribution. On the negative side, there’s often underinvestment in the very projects that sustain the ecosystem. I have a lot of empathy for why, when open source meets finance and private equity, things can go sideways. You can look at a business built on open source and see seemingly amazing margins—efficient R&D that compounds in a [DCF model](https://en.wikipedia.org/wiki/Discounted_cash_flow). A percent here or there over many years really adds up. My plea to investors in open-source businesses is this: when a business is built on top of open source, incorporate a restorative investment percentage back into the projects critical to the end-user experience of what you’re offering customers. In WordPress, we call this [Five for the Future](https://wordpress.org/five-for-the-future/), but it doesn’t have to be five percent; it could be 0.1%. Plan for it when modeling your expected [IRR](https://en.wikipedia.org/wiki/Internal_rate_of_return) hurdle from an investment. Then, a few years down the line, when the small percentages start to add up, you won’t face a big catch-up or gap. This underinvestment is itself an externality. It doesn’t appear on the balance sheet, but it can manifest in black swan events, such as security breaches or remote code exploits. Technical debt is one of the largest unaccounted-for externalities in the world today. Engineering, in the long run, is primarily a craft of maintenance rather than creation. The bulk of the cost of something comes from its upkeep over time., Account for Externalities, Matt, 01k4ysam8r654z6519qgjj3rqz.