In a previous post we introduced non-cooperative game theory and the problems of collective action known as The Tragedy of the Commons, but we subsequently applied the concept to problems of external costs and Coaseian bargaining. This post will more closely examine the economic and moral dimensions of common pool resource problems.
To understand the problem of common pool resources, it is necessary to distinguish between different types of goods.
Excludable goods are those that can be kept from other people — like a locked car. Non-excludable goods cannot be protected from consumption by others — like a free public roadway.
Rivalrous goods are those people must compete for. That is, consumption by one person diminishes the amount that another person can consume — like a library book that is checked out by one person for a long time. In the video above, Elinor Ostrom describes these goods as “subtractive”. Non-rivalrous goods are consumable by multiple people at once — like an e-book that can be digitally copied for practically no cost.
Because common pool resources are not infinite and people cannot be excluded from consumption, they may become exhausted before everyone has a chance to use what they need. This is particularly true of renewable resources that grow in the environment, like timber or fish. In this case, the amount of growth in any season is dependent upon the stock that has not yet been consumed. So, for new growth to be available for future consumption, present-day consumption must be restrained to leave enough of a stock from which the new growth will take place.
The tragedy of the commons occurs because every individual has an incentive to increase their own profits or consumption by taking more of the common pool resource before others can take it for themselves. But when everyone takes too much, the resource is destroyed — sometimes irrevocably. There have been several examples of exactly this problem, resulting in destruction of essential resources. The most common examples are overfishing and clear-cutting of entire forests, but Garrett Hardin‘s original example cited the pastoral British tradition of grazing animals on common land.
Hardin attributes the tragedy to overpopulation. His view is that when human consumption exceeds the capacity of an natural resource system to provide for those needs, some sort of rationing system must be instituted to prevent destruction of that resource. Because their are insufficient resources to allow current American consumption rates for everyone on the planet, Hardin feels that rates of consumption in the US must necessarily fall.
The neoclassical economic solutions to the problem of common pool resources are privatization, which allows ownership to exclude consumption by others, or regulation (such as requiring fishing, logging or grazing permits). However, the history of common pool resources shows that their are also several societies that have successfully managed common pool resources for generations without privatization or formal mechanisms of government control.
In the video below, Ostrom explains the mathematics of the problem in a graph that illustrates how individual incentives will result in over-consumption of a renewable resource. While Ostrom agrees with Hardin about the pressure that global population places on natural resources, she disagrees that privatization and regulation are the only solutions. She proposes a third alternative that depends on collective action, in which people coordinate their individual actions to ensure a desirable social outcome.
The x-axis of Ostrom’s graph represents the amount of the resource (e.g., fish) harvested each year. When harvest rates are too low, then a resource like fish will simply die of natural causes, rather than benefit humans. But when harvest rates are too high, the resource population will diminish to such a low level that it will no longer grow quickly enough to meet human needs. Therefore, there is an optimum rate of harvest at which the natural resource results in the maximum sustainable yield, representing the social optimum as an inverted parabola on Ostrom’s graph.
However, where the cost of an increasing the harvest (represented by the straight line) is less than the benefits (e.g., profits, represented by the difference between the parabola and the straight line), then an individual will have a profit incentive to increase the rate of harvest up until the point where the two lines intersect. At the intersection, profits are zero. This intersection point exists to the right of the maximum sustainable yield and is therefore too high, resulting in a resource crash.
Ostrom says that “good” people will restrain themselves from consuming too much. But in this video, Dan Ariely claims that it fairly common for people to cheat “just a little bit”, even if they won’t cheat a lot.
The problem with cheating just a little is that when everyone takes a little more from a common pool resource, harvest rates shoot way past the social optimum. Moreover, cheating can be contagious, meaning that when one person decides to cheat, they make others more likely to cheat, too!
But Ariely notes that group identity is also important. When students from Carnegie-Mellon University saw an actor dressed like a student from the University of Pittsburgh obviously cheating, they were less likely to cheat — not more. Also, recent behavioral research shows that punishment (presumably including the threat of exclusion from a group) and religion both mitigate the human tendency to cheat (even for atheists!)
The realization that team identity, moral contagion, distance and social punishment all can play important roles in the group dynamics of a commons problem suggests that there are interactions between individuals that are not captured by the mathematics of a game-theoretic payoff table (described in the Khan Academy video on the Prisoner’s Dilemma and Tragedy of the Commons in our previous post).
No doubt these additional interactions are complex and emergent. Complex means that the mechanisms are not reducible to deterministic, reliable cause-effect relationships. As a result and they may be observable in some contexts, but hidden in others. Emergent means that the whole cannot be predicted solely from examination of the component parts — i.e., some new and surprising emerges from the interaction. These considerations that extend beyond a hyper-rationalistic interpretation of the Nash Equilibrium are describable as moral leadership, which is “the incremental influence one individual exerts over another above and beyond mechanical compliance” (Cherrington 2008).
- Introduction to The Tragedy of the Commons (sustainableengineeringsystems.com)
- Introduction to Game Theory (sustainabilityethics.com)
- The Challenge of Common-Pool Resources… (mostlyeconomics.wordpress.com)
- Elinor Ostrom, you were turtley right (worthwhile.typepad.com)
- Troubles of Public Resources (thedailybell.com)
- Eight Points of Reference for Commoning (p2pfoundation.net)
- How corruption hampers enforcement of environmental regulations: Case of South African fisheries (mostlyeconomics.wordpress.com)