Efficiency and the tragedy of the Commons -N

allocative efficiency- looks at the allocation of resources in the economy. This occurs anywhere along the PPF curve.

Pareto efficiency- its impossible to increase one choice without causing less production of the other

The tragedy of the Commons- Victorian economist William Forster Lloyd in 1833

It’s a situation where there is overconsumption of a particular product/service because rational individual decisions lead to an outcome that is damaging to the overall social welfare.

The tragedy of the commons theory assumes that when making decisions, people take the course of action that maximises their own utility.

In theory, individuals could limit their use. = free rider problem- people try to get a bit more and then everyone starts free-riding

Causes-

• a general disregard for the common good (selfish) choosing short term needs instead of thinking about the big picture

• no formal control over the use of the resource

• no barriers to who can and cannot access this resource

Examples: Coffee consumption, fast fashion, traffic congestion, groundwater use, commercial fishing, use of rainforest land for agriculture

How to stop the tragedy of the commons: limiting resources, legislations, policing, taxing, barriers to entry

How to stop the tragedy of the commons theoretically:

• voluntary agreements along the lines suggested

• Government regulations

• Clearly defined property rights

• Taxes, fines, quotas