Category: Economics

For the past few weeks, I suddenly have an intense curiosity on tragedy of the commons. The idea is fairly simple. It is a concept in economics where everybody overused a public resource.

In the model that describes tragedy of the commons, there is a public good where nobody owns the good and may freely use it. At the same time, there are a number of resource users. If the users are agreeable, then they possibly can assure the sustainable level of resource usage by voluntarily limiting individual consumption. Let’s just say that initially, everybody limits their usage of resource.

However, since nobody owns the resource (also can be called as the commons) and everybody may use the good, then some user, in fact, every user has the incentive to go over the consumption limit and this is done at the expense of the resource sustainability. The incentive for going over the limit is the higher current consumption level with little immediate cost.

Once a person actually goes over the consumption limit (let’s call this guy as Ferguson the bastard), another individual will follow suit (this guy is van Nistelrooy the crybaby). This is because the crybaby’s future amount of consumption is being taken by the bastard and the only way for the crybaby to retake his (crybaby) future consumption is by shifting his (crybaby) future consumption to the present.

The reason for the crybaby’s reduction in future consumption is that once anybody goes over the limit, the sustainability of resource usage is reduced. Simply put, the future of the pie size will decrease. At the same time, the bastard will enjoy a larger share of the pie and the crybaby will increasingly get a smaller piece of the pie if the crybaby does not increase his consumption.

Thus, the crybaby will go over the limit for his own sake. As a result, sustainability of the resource is sacrificed in favor of current consumption. The rate of the pie getting smaller will be faster; and hence name of the model – it is clear that they all will benefit if they limit their consumption but due to self-interest — it wouldn’t be too much to recognize this as greed — all in the end suffer the cost. The cost is decreasing consumption in the future. Note that, if there is another person using the resource beside the two, then the person will also increase his current consumption for the same reason as described. In actuality, each and every user of the resource will do the same.

In this explanation, I assume that the resource is renewable – at the level where everybody agrees to limit initial, the regeneration rate of the resource equals the consumption rate of the resource. Whenever anybody goes over the limit, the consumption rate is higher than the regeneration rate.

It is not hard to relate the tragedy to the issues related to the environment. The environment in someway is a public good. Nobody owns the air, nobody owns the planet. Also, everybody breathe the same air, everybody lives on the same planet. Similarly, almost everybody is overexploiting the environment.

Knowing that everybody is better off not overexploiting, it is a tragedy indeed seeing everybody is overexploiting the environment.

After reading lightly about cases relating to tragedy of the commons for about a week, I realized and later found out from some reading that one way to reduce this hazard is to privatize everything. A total privatization will eliminate this problem completely, assuming stealing is not an option. How is the problem is eliminated? Simple! There is no public good at all after privatization!

At least in this way, every rational person will rational enough to not overuse his private property though the same can’t be said for irrational person. If an irrational person overuses his private resource, by all means he deserves to face any tragedy caused by his irrationality. Like one of my economic instructors once said, if they want to screw themselves, let them screw themselves.

But it is hard to imagine a total privatization of the planet. I can’t imagine the air being privatized though the same can’t be said for water. I am content to say not everything can be privatized and therefore, I don’t think this is viable.

Another solution is the creation of an administrator over the commons. The administrator will enforce the limit, making sure nobody will go over the limit. If somebody does go over the limit, like the bastard in the first place, sufficient punishment will be administered towards the offender.

And I asked myself: Why is there nobody to govern the environment?

One word came to my mind: Kyoto; all agreements on the environment in general act as that body that governs the “amount of damage” to the environment. But the second option has its own problem – the freeriders. People that don’t agree to the treaty will benefit as much as those that commit themselves to the treaty without incurring the cost of commitment to the treaty, at least when it concerns anything that as global as climate change.