Oliver Alexy and Martin Leitner of Technische Universität München (TUM) Business School attempt to answer a question that most open-source communities would love to understand: do monetary rewards (bounties, etc.) motivate development? While not conclusive, Alexy's and Leitner's research suggests that the answer is "definitely maybe."
The authors surveyed 229 people involved in or familiar with open source to probe their susceptibility to monetary motivation in open source. As the research suggests, monetary rewards are rarely a bad idea, and can, depending on the project/context, "significantly increase()" motivation to participate in a given project:
By offering a monetary reward in a specific project, organizations that think about sponsoring OSS efforts may successfully attract skilled developers to work on their specific needs: while our data show that the attracted developers will be more strongly extrinsically motivated than their peers, no difference in intrinsic motivation, and no detrimental effect of reward on total motivation is observable. On the contrary, the likelihood that a developer will start working on this project - expressed by total motivation - significantly increases. Yet, organizations should refrain from sponsoring projects that...follow fundamental ideologies, as with a rather strong norm for no payment, the detrimental effects of rewards might easily outweigh their positive effects here. (22)
As Google (Summer of Code) and others are showing, developers don't mind getting paid for their work, even though prestige or resolving a complex development problem may be their topmost concerns. Monetary rewards can help to steer developers to one's project that might otherwise contribute their time and talents elsewhere.
I've seen bounties work reasonably well while at Novell, but I'd be curious to hear others' thoughts on mixing money with development. Any positive experiences? Negative ones?