Tragedy of the Commons
- Common pool (access) resources are natural resources over which no private ownership has been established. They are non-excludable but rivalrous in consumption
- Examples of common pool resources include
- Oceans (especially international waters)
- Natural forests and rainforests
- Communal grazing land
- Water sources such as rivers
- The tragedy of the commons (as explained by Garret Hardin in 1968) occurs when common pool resources are used in production in an unsustainable way
- Left to the free market, there is no private ownership over these resources, as it is costly and inefficient to find ways to exclude other producers
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- This creates negative externalities of production and consumption
- There is no incentive for firms to reduce production levels as they seek to maximise profits. If an individual producer cut back production, other firms may then enter the market, causing them to lose out. Each private producer has the self-interest to keep exploiting resources
- There is also no incentive for consumers to reduce consumption levels. If an individual consumer cuts back on consumption, other consumers will use the resource. E.g Excessive consumption of fish from a lake will deplete fish stock, exploiting resource
- This creates negative externalities of production and consumption
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- The external costs of production and consumption often include pollution, environmental damage and resource depletion, which prevents future generations from benefiting in the same way. This results in partial market failure
Worked example
The tragedy of the commons can be applied to the grazing of cattle on public lands. What is the nature of this market failure?
- Overgrazing results in degradation of grazing lands
- The establishment of grazing permits by government authorities
- The positive externalities associated with cattle farming
- The third-party effects on wildlife due to cattle ranching
Answer
A. Overgrazing results in degradation of grazing lands
The tragedy of the commons refers to a situation where a commonly owned resource (public grazing lands), is overexploited due to individuals' self-interest. Overgrazing can occur when there are no restrictions or regulations on the number of cattle allowed to graze. This can lead to the degradation of grazing lands or soil erosion