Common Pool Resources and the Tragedy of the Commons

Common Pool Resources

• Definition: Goods that are rival but nonexcludable.

  • Example: Fish in a large body of water.

  • Characteristics:

    • Difficult or impossible to exclude others from using the resource.

    • Any fish caught by one individual reduces availability for others (rivalry).

Everyday Examples of Common Resources

• Food at a Party:

  • Invited guests cannot be excluded from food.

  • Every serving taken by one guest means less for others.

Individual Incentives and Marginal Costs

• Focus on Marginal Private Cost: Individuals consider their personal benefit versus the cost.

  • In fishing, the calculation involves the benefit from an additional fish versus associated costs.

• Neglect of Collective Impact: Individuals do not account for the total effect on resources, leading to overexploitation.

Importance in Fisheries

• Population Sustainability:

  • Fisheries require a sufficient population size to breed and avoid extinction.

  • Individuals' incentives to catch as many fish as possible jeopardize overall sustainability.

Analogies with Farming

• Short-Term Incentives:

  • Hypothetical farming scenario modeled after fisheries: competition to harvest first alters long-term earth stewardship.

  • Results in focus on immediate gains while neglecting resource maintenance.

Broader Examples of Overuse

• Common Resources:

  • Plowing through donuts at work, deforestation, near-extinction of wild animals, overgrazing of cattle.

  • Tragedy of the Commons: Overconsumption of shared resources due to disregard for negative externalities.

Consequences of Overconsumption

• Potential depletion of resources leading to scarcity for everyone.

Causes of Market Failure

• Lack of Property Rights: Absence of defined ownership allows for irresponsible consumption.

Solutions for Common Pool Resources

• Government Intervention:

  • Potential to create markets by assigning property rights.

  • Example of common pastures fenced and assigned to individual ranchers fosters long-term care.

Fisheries and Virtual Property Rights

• Challenges in Implementation:

  • Difficult to assign property rights to ocean resources due to mobility of fish.

• Individual Transferable Quotas (ITQs):

  • Governments allocate a total allowable catch that sustains fish populations.

  • Fishermen receive shares that can be sold or traded.

  • Incentivizes preservation as depleting resources diminishes the value of individual quotas.

Internalizing Externalities

• Long-Term Value Consideration for Fishermen:

  • Preservation of fisheries becomes beneficial as quotas maintained increase over time.

  • Similar to private farmland where long-term care increases the land's value.

Conclusion

• Real-World Application of Economic Principles:

  • Use of property rights in fisheries demonstrates effectiveness in mitigating the tragedy of the commons.

  • Many countries adopting rights-based approaches highlight the significance of these concepts.