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• Common resources are those that are nonexclusive but rival.

  • They get depleted as more people use them.

  • Nonexcludable: there are no property rights to them.

  • For example, fishing, no one can stop you from fishing, but for every fish you have, there is one less for everyone else.

• This leads to a destruction of the common resource.

• The tragedy of the commons: the tendency of any resource that is unowned, and hence nonexcludable, to be overused and undermaintained.

• There is no incentive to conserve because he doesn't own it, so if he doesn't take it, someone else will. Conserving will bring no future benefit.

• Solutions:

  • Command and control: regulations used to try to limit or avoid the tragedy. Often inefficient and ineffective. They slow but don't prevent the tragedy.

  • Cultural norms: can be effective in relatively small and self-governing communities. Don't fish more than you have to, and you'll get honor from the society.

  • Creating property rights:

    • Individual Transferable Quotas: a property right to a certain tonnage of fish. The sum of ITQs is the total allowable catch per year.

    • ITQs can be bought and sold.

    • This creates incentive to preserve the resource, as it is already yours, and you will also make sure that others follow the system.

• But it is not always possible to create property rights.

  • The more parties involved, the greater the transactional cost, the less likely an agreement is to happen.