Port Meadow in Oxford
The tragedy of the commons is 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. However, if many people seek to do this, the net effect may be to deplete a resource making everyone worse off in the long run.
The tragedy of the commons was first mentioned by the Victorian economist William Forster Lloyd, in 1833. He used a hypothetical area of common grazing land, in which villagers all took their cows to this common grazing land, but this led to overgrazing and a loss of the resource.
In theory, individuals could limit their use so that they don’t deplete the common resource. However, there is a free-rider problem. Where people rely on others to cut back their production. If everyone free-rides and maximises their use, then we get a situation of over-consumption.
Over-fishing and Tragedy of the Commons
Individual fisherman have an incentive to catch as many fish as possible. However, if many fishermen have this same motive, then it can lead to fish stocks being depleted as fish are caught at a faster rate than they are replenished.
Unchecked, this can lead to a collapse in fish stocks due to over-fishing.
If one individual fisherman holds back on his catch to try and preserve overall fish stocks, it may prove futile because many other fishermen continue to catch as much as possible. The net result is that fisherman don’t have any incentive to hold back, so they might as well try and catch as much as possible.
Voluntary agreements to avoid the tragedy of the commons
Elinor Claire “Lin” Ostrom an American economist investigated local communities who did work together to successfully manage common resources. She used the term ‘common pool resource management’ to describe how local individuals could come together to make informal arrangements to manage and use the pool of resources. Her examples of local initiatives led to the use of the term (sometimes known as Ostrom’s Law)
“resource arrangement that works in practice can work in theory.”
However, this co-operation is more difficult for an international resource like fishing in the north sea. In this case, the multi-national level fishing makes it more difficult to reach an agreement.
Example of Tragedy of the Commons
For example, we may have a plot of land which could tolerate 20 animals grazing per year. This level is sustainable from year to year.
However, if the land is open, there may be 40 villagers each bringing their own cow to graze the land. This leads the village green to be overgrazed meaning the village lose this common land.
If there was regulation or a common agreement to limit grazing to 20 cows, then the net welfare would be much greater for the village as it would last from year to year.
Policies to Overcome Tragedy of the Commons
- Voluntary agreements along the lines of Elinor Ostrom, with informal arrangements and local monitoring. Strong sense of civic responsibility can make these arrangements more successful.
- Government regulation. Government regulation can limit fish catches or size of fish nets to allow young fish to escape.
- Clearly defined property rights. If common land is given over to private ownership, the private owner has a stronger incentive to manage the resource for optimum outcome. However, the problem of property rights is that it can lead to equity issues (private owners gain monopoly power over tenants). Also if owner pursues short-run profit maximisation he may make the same mistakes.
Fishing Policy. The EU has a fishing policy to try and regulate fish stocks in heavily fished areas. However, it is often controversial because agreeing and implementing quotas can be a source of friction.
For example, in fishing, the international community may set a specific fishing quota, which is split up amongst different fishing industries. If these quotas are kept, then fishing stocks should be preserved.
- Free Rider Problem – a situation where people have an incentive to benefit from the efforts of other people.
- Public goods – A good where there is non-rivalry and non-excludability. Not a good where there is a tragedy of the commons, will not be a public good because it has the function of rivalry.