Common resources are resources which are both non-excludable and rival. Unlike public goods, common resources get depleted as more people use them. An example of a common resource is the Tuna in the ocean.
Tunas are non-excludable since there is no property right to fish in the ocean and no one can legally be prevented or fish for Tuna. The fish are also rival which means everybody fish for Tuna in the ocean which will then leads to the tragedy of the commons which is the depletion of the Tuna stock in the ocean.
Common Pool Resources
The definition of the tragedy of the commons is that the tendency of any resource that is unowned and non-excludable which leads the resource to be overused and under-maintained. A case study of the tragedy of the commons is the Tuna catch which is rapidly depleting by 75% since 1960.
Although nobody wants this to happen this happened because the fisherman has no incentives to conserve and maintain common goods because he/she doesn’t own the stock of resource. There are three approaches to solving the tragedy of the commons:
- command and control,
- cultural norms,
- property rights
1. Command and Control
Command and control can be defined as rules and regulations which can be set to limit or avoid this tragedy but this method work for sometimes and it becomes inefficient and ineffective in the long run. For example, when fishing stocks start to collapse, some rules were made so as to improve the stock like a number of boats that can fish or the number of days to fish in a year. This then becomes ineffective as the fisherman starts to build advanced boats and fishing equipment which makes the regulation more and more complex over time.
2. Cultural Norms
The second approach is the cultural norms and this can evolve where people that overfish are socially disapproved while those that contribute the growth of the resource are honoured and this can help to develop procedures for managing natural resources but it can work on groups that are small and stable and it takes time to develop.
3. Property Rights
Another way to tackle the tragedy of common resources is by making the common resource excludable by creating property rights on them. This will make common resource behave more like a private group. For example, in New Zealand, an innovative solution was pioneered for the tragedy of the commons.
A tradable allowance in fish is created which means property right was created. New Zealand implement what is called Individual Transferable Quotas (ITQs) and this gives a property right to a certain tonnage of fish and the sum of the ITQ is the total allowable catch per year. This ITQs can be bought and sold by the fisherman and the best part is that there are no restrictions on boats or equipment.
- Nordic Fishmonger: The Icelandic Fisheries Management System
- Project Sensor: Biosphere 2 | Environment Monitoring System
- Fundamental Finance Playbook: TCI and the Becoming of the Cable Cowboy
This system is quite effective in New Zealand as it helps to increase the total catch dramatically since it was implemented in New Zealand and this is possible because a fisherman owns a right to a certain amount of fish year by year and he will try to preserve the values of his property over the long run which means that he will not overfish and he will also ensure that another fisherman obeys the ITQs. This means that under the right system the tragedy of the commons can be reduced.
William Forster Lloyd
In 1833, a British mathematician and economist by the name William Forster Lloyd published two lectures titled On the Checks to Population. In one of those lectures, Lloyd describes the phenomenon of the Tragedy of the Commons, with an analogy of a cattle herders that shared a common parcel of land, that they used for grazing.
As Lloyd describes, each individual herder is incentivised to add cattle to his herd as the herder will reap advantages for each additional cattle but the damage to the parcel of land will be shared by all herders. As all herders try to maximize their own benefit of the parcel, this eventually leads the parcel to be overgrazed and potentially destroyed.
In 1968, the ecologist Garrett Hardin coined the phrase Tragedy of the Commons, when an article by the same name was published in the academic journal Science. The article derived its title from Lloyd’s lecture and further outlined the problem described by Lloyd of people being trapped in a tragedy of common resources being depleted, by actors rationally acting on their own incentives.
Prior to Hardin’s publication, terms such as the Commons, Common Pool Resources, or Common Property were very rare in the academic literature. Hardin’s article, however, was focused on the perils of population growth and did not focus directly on proposing a solution for the Tragedy of the Commons problem.
In fact, Hardin concludes his article by saying: “The only way we can preserve and nurture other and more precious freedoms is by relinquishing the freedom to breed, and that very soon. “Freedom is the recognition of necessity”–and it is the role of education to reveal to all the necessity of abandoning the freedom to breed. Only so, can we put an end to this aspect of the tragedy of the commons.”
It was Elinor Ostrom who pawed the ground for providing solutions to the Tragedy of the Commons. Ostrom was a political economist and a brilliant mind, who dedicated her life to the study of common goods and different systems used to manage common pool resources.
Both Lloyd and Hardin had asked the reader to “imagine a pasture open to anyone.” There was no empirical evidence or data to support the claim. It was a strictly theoretical exercise. The presumption that prevailed was that humans were helpless, trapped within this tragedy.
Elinor Ostrom, along with other scientists, disproved this idea by conducting a wide range of studies on how people in small, local communities manage shared natural resources, such as pastures, fishing waters, and forests.
In the Mid-Eighties, Ostrom and her colleagues started to review the empirical research written about common-pool resources. They discovered that much research had been done on the topic but that it was divided by disciplines, sectors, and regions.
Scholars studying inshore fisheries in Africa would be unaware of studies of resources in Africa. Sociologists would not be aware of the work done by economists and vice versa. Ostrom and others began to synthesize and map out the existing academic research.
In 2009, Elinor Ostrom along with Oliver E. Williamson was awarded the Nobel Prize in Economics for her analysis of economic governance, especially the commons. She is the only woman to have received the prize.
Read More on Economics on How to Value Stuff