Jan 11 2012

The Tragedy of the Commons as a Market Failure

Over the last few weeks in our IB Economics class, we have been studying cases in which markets fail to achieve an efficient, socially optimal level of production and consumption when the private buyers and sellers are left to interact in a free market. Markets fail in many ways; sometimes they produce too much of a good, and sometimes too little is produced. There are some things society would benefit from having more of, while other things society would be better off with less than what is produced by the free market.

When the free market fails to achieve a socially optimal level of output, at which the costs and benefits not just of the individual consumers and producers are accounted for, but all social, environmental and health costs and benefits are weighed as well, the government may be able to improve on the free market outcome by intervening in some way. For example, certain goods deemed beneficial for society are simply under-provided by private firms: Education, infrastructure, public transportation, security, health care… these are all markets in which government often intervenes to increase the provision of the good to society. In other cases, government intervenes to decrease the amount of a good consumed: Cigarettes, alcohol, reckless driving, polluting factories, violence on TV, child pornography, dangerous drugs… in each of these cases governments tend to use taxes, regulation or legislation to reduce the amount of the harmful good available on the market.

Besides the merit (beneficial) goods and the demerit (harmful) goods described above, markets may fail in other ways as well. One notable form of market failure arises due to a phenomenon first articulated by American ecologist Garrett Hardin, who warned of the Tragedy of the Commons. In his 1968 essay, Hardin explained that when there exist common resources, for which there is no private owner, the incentive among rational users of that resources is to exploit it to the fullest potential in order to maximize their own self gain before the resource is depleted. The tragedy of the commons, therefore, is that common resources will inevitably be depleted due to humans’ self-interested behavior, leaving us with shortages in key resources essential to human survival.

Each of the videos below illustrates a different example of the tragedy of the commons. Watch the videos and think about how each applies Hardin’s concept.

Example 1: Thousands of fishermen empty lake in minutes:

Example 2 – Dr. Suess’s The Lorax
[youtube]http://youtu.be/8V06ZOQuo0k[/youtube]

Example 3 – Tuna fishing

In each of the videos above, there is a common resource (fish and trees) over which no ownership has previously been established. The resource users (the Malian fishermen, the Once-ler and his family and the tuna boat), all have a strong incentive to maximize their own short term gain by extracting and exploiting the resource as quickly as possible.

  • In the Mali fishing hole, the outcome is observable: within minutes the resource is depleted and there are no more fish for for future fisherman to enjoy.
  • In The Lorax the result of the Once-ler’s exploitation of the forest is foretold in the beginning of the story when the young boy comes upon the desolate outskirts of his town.
  • The tragedy of the commons acts as a warning to the tuna fishing industry, in which there are still tuna surviving in the world’s oceans, but at the rates industrial fishing boats such as the Albatun Tres exploit the resource, it will not be around much longer.
In each instance above, a market failure occurs. Due to the lack of private ownership over valuable resources, self-interested individuals stand to gain by exploiting them to the fullest extent possible while they still exist. The unfortunate outcome is that over time the resources are exploited unsustainably until they are ultimately depleted. As in the case of merit and demerit goods, the market failure of common resources provides an opportunity for government to intervene to achieve a more socially optimal allocation of resources. In the interview below, Garrett Hardin suggests that there are only two possible solutions to the tragedy of the commons. Watch the video and then respond to the discussion questions that follow.

Garret Hardin – the Tragedy of the Commons

Discussion Questions:

  1. Hardin refers to Karl Marx’s adage “from each according to his abilities, to each according to this needs.” What does Hardin have against this socialist idea?
  2. How does Hardin’s example of a “common pasture” illustrate the tragedy of the commons? How is a common pasture similar to the three examples in the videos above?
  3. According to Hardin, what are the only two solutions to the common pasture problem? Which of these solutions do you think would be most socially desirable?
  4. Explain Hardin’s claim that “the unmanaged commons cannot possibly work once the population gets above a certain size”. Of the world’s common resources today, what are some examples of common resources that remain unmanaged?
  5. Whose responsibility should it be to decide how common resources should be dealt with?
  6. Do you agree with Hardin’s claim that “the world cannot possibly live at the American standard of living at its present population size”? Which of his predictions do you think is most likely to occur: Will the American (and Western European) standard of living have to go down or will the number of people in the world have to be reduced? Or is there a third possibility? Discuss.

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

9 responses so far

9 Responses to “The Tragedy of the Commons as a Market Failure”

  1. Giulioon 14 Jan 2012 at 11:15 am

    Hardin refers to Karl Marx’s adage “from each according to his abilities, to each according to this needs.” What does Hardin have against this socialist idea?
    This means that just because you leave you deserve and you are allowed to take your share, Hardin says that no other animal species operates according to this idea and also mentions that biologists think humans cannot do that safely.

    How does Hardin’s example of a “common pasture” illustrate the tragedy of the commons? How is a common pasture similar to the three examples in the videos above?
    Hardin says that if there is a land, and people want to put as many animals as they want, this will be done only as long as there aren’t many people that want to put animals in the land. But when the land is full of animals only two things can be done: either divide the land in small parts and each one takes care of his own, of get someone to manage and find out what’s the maximum number of animals that can be on that land.
    This is similar to the other examples because it shows that as long as only a few people want to do something that isn’t sustainable they will be able to keep going for a while, but as soon as the number of people that do something unsustainable increases the time taken to run out of whatever they were looking for will shorten.

    According to Hardin, what are the only two solutions to the common pasture problem? Which of these solutions do you think would be most socially desirable?
    He says that there is only private property or socialism, I think private property is better because if everyone has his little piece of field that they are taking care of they will do their best to get the maximum out of the animals, so it is better to have something big divided in small pieces and get the most out of it than having it all together but in a disorganized way.

    Explain Hardin’s claim that “the unmanaged commons cannot possibly work once the population gets above a certain size”. Of the world’s common resources today, what are some examples of common resources that remain unmanaged?
    In class we talked about the ocean that nobody owns, that’s where the fishers go to fish because in that zone there are no regulations, but if the populations requesting for fish grows that more fishers will go in that zone of the ocean to fish, extinguishing them.

    Do you agree with Hardin’s claim that “the world cannot possibly live at the American standard of living at its present population size”? Which of his predictions do you think is most likely to occur: Will the American (and Western European) standard of living have to go down or will the number of people in the world have to be reduced? Or is there a third possibility? Discuss.
    I think that what will happen is that the people that have a mediocre to high standard of living will keep trying to live the same way, but by doing that the poor will get poorer so this will cause many people that live already a very poor life to not be able to live anymore. So the population will decrease and the standard will remain the same, but even after that the same thing will happen again and only the richer people will live at the same standard making who had a mediocre living to get poor, and this will probably keep going until even the rich will become poor.

  2. Charles Roberton 14 Jan 2012 at 1:01 pm

    Hardin

    1.Hardin refers to Karl Marx’s adage “from each according to his abilities, to each according to this needs.” What does Hardin have against this socialist idea?

    Marx’s idea would mean that everyone in the world has his or her share of everything. Hardin argues that this idea would be able to work only if there was a very restricted amount of humans on the planet. He argues that it is human nature not to be able to take advantage of the resources given to them and they would quickly exploit as much of a given resource as fast as they can. Of course, this would quickly result in the depletion of such resources.

    2.How does Hardin’s example of a “common pasture” illustrate the tragedy of the commons? How is a common pasture similar to the three examples in the videos above?

    The common pasture, as Hardin said, is a great example. As long as people live in a very small community, they are able to live in harmony with their pastures. However when more people come to exploit this pasture, it is part of human nature to want to exploit these pastures as fast as possible. In the videos above, the allocation and exploitation of trees, tunas or fish in general are visibly not controlled. Therefore, humans will take advantage of this and exploit the resources as fast as they can in order to get the biggest short-termed profit.

    3.According to Hardin, what are the only two solutions to the common pasture problem? Which of these solutions do you think would be most socially desirable?

    Hardin explains that in this situation, either we must allocate the resources in many different pieces of private property, meaning that everyone would be allocated their share of the resource and will therefore be responsible for it, or that we should hire a manager to exploit this resource in a respectful manner as a group. The first solution seems more dangerous than the second, because one cannot trust a whole civilization to manage their share responsibly and respectfully. The second variant is a much better idea. This is how the world mostly works today and as long as the manager is competent and self-less, there is a bigger chance of success. It is better to rely on one person than many.

    4.Explain Hardin’s claim that “the unmanaged commons cannot possibly work once the population gets above a certain size”. Of the world’s common resources today, what are some examples of common resources that remain unmanaged?

    It is human nature to want more money. The world today, sadly, revolves around the making of money. When a population is small, the exploitation of a resource can hardly make that much profit, unless exported and that includes additional costs. Also, morality defies taking something that does not belong to one’s own in a small society. However, when the population gets bigger, it becomes more difficult to restrict the overexploitation of the resource allocation and this morality goes down the drain and people seek more money. Most examples of the “tragedy of the commons” is money related, but can also be convenience related. There are examples such as most energy resources, vandalism, traffic…

    5.Whose responsibility should it be to decide how common resources should be dealt with?

    A government should have the responsibility of allocating goods and should decide on how to exploit fairly. Of course, there is no world government. However, these allocations should be dealt with as a whole. If we take the oceans for example, they are not belonging to any country. However, how would it be, if certain square kilometers would be allocated to the countries that can afford it? Such solutions should come from associations of world governments.

    6.Do you agree with Hardin’s claim that “the world cannot possibly live at the American standard of living at its present population size”? Which of his predictions do you think is most likely to occur: Will the American (and Western European) standard of living have to go down or will the number of people in the world have to be reduced? Or is there a third possibility? Discuss.

    Of course what Hardin is saying is true. On planet earth, there are not enough resources to feed 7 billion people equally. As a matter of fact, there just aren’t resources to feed some people at all. Not only food, but any kind of natural resources is resulting in this. What will most likely happen is that the American standard will decrease, because the Asian countries that are starting to make a lot of money will start asking for their share of natural resources around the world and someone will need to suffer the consequences. Asians and African aren’t stupid, they see how we live, and they want to have the same. However this will not be possible, and as soon as they will see this and have the power to act, they will try and take their share, making Europe and America have to decrease their lifestyle.

  3. Mats Rickeon 16 Jan 2012 at 7:06 pm

    Hardin refers to Karl Marx’s adage “from each according to his abilities, to each according to this needs.” What does Hardin have against this socialist idea?
    He thinks that this cannot be a solution since humans would exploit the resources they then would have access to. He says that no other animal species operates by this principle and doesn't believe that humans can do so safely as biologists say as well.

    How does Hardin’s example of a “common pasture” illustrate the tragedy of the commons? How is a common pasture similar to the three examples in the videos above?
    It is a great example since people of a large community tend to exploit such a resource as fast as possible because they think that there won't be any benefit if they didn't since there are always others who are exploiting the pasture when there is no regulation. It is almost the same as in the three examples, just that we have trees, fish or tuna that is being exploited instead.

    According to Hardin, what are the only two solutions to the common pasture problem? Which of these solutions do you think would be most socially desirable?
    He suggests that the land has to be divided up into many pieces of private property where everyone is responsible for their own or that the community should hire somebody who decides how the resource should be used and its exploitation regulated.

    Explain Hardin’s claim that “the unmanaged commons cannot possibly work once the population gets above a certain size”. Of the world’s common resources today, what are some examples of common resources that remain unmanaged?
    The ocean's international areas is a common resource that nobody owns as well as the air which gets polluted more and more every day. The ocean's most known exploitation is probably overfishing.

    Do you agree with Hardin’s claim that “the world cannot possibly live at the American standard of living at its present population size”? Which of his predictions do you think is most likely to occur: Will the American (and Western European) standard of living have to go down or will the number of people in the world have to be reduced? Or is there a third possibility? Discuss.

    Of these two options it is most likely that the standard of living have to go down in America and western europe since population grows rapidly and is leveling of slowly what still doesn't solve the problem since it is not possibble to reduce the population. But the people living at western european and american standard will try to keep up their standard of living. I think that only green technology together with regulations and taxes will solve the problem.

  4. Andrew Fischeron 17 Jan 2012 at 12:28 am

    1. Hardin refers to Karl Marx’s adage “from each according to his abilities, to each according to this needs.” What does Hardin have against this socialist idea?

    Hardin opposes Karl Marx's model because he says, "no other species of animal operates by this principal, and to think that human beings can do so safely is a radical idea".

    2. How does Hardin’s example of a “common pasture” illustrate the tragedy of the commons? How is a common pasture similar to the three examples in the videos above?

    Garrett Hardin explained in an essay that "when there exist common resources, for which there is no private owner, the incentive among rational users of that resources is to exploit it to the fullest potential in order to maximize their own self gain before the resource is depleted". Cows grazing in a pasture is a good example of the idea of tragedy of the commons, defined above, because people will attempt to maximize their own self gain by feeding/raising as many cattle on the field as possible. This burden of cows will deplete the field to such an extent that it can no longer support grazing. A common pasture is similar in nature to the fish "pond", the forest, and the ocean in the video examples above.

    3. According to Hardin, what are the only two solutions to the common pasture problem? Which of these solutions do you think would be most socially desirable?

    Hardin explains that the only two solutions are the division of the pasture into pieces of private property or socialistic management of the pasture. It would seem to me that the division of the pasture into parcels for private ownership would be more socially desirable. I think that people generally have greater incentive to manage their own property more responsibly than they do shared property. The socialistic model would not offer this advantage, and would, in my mind, not represent such a large shift from the unregulated common pasture.

    4. Explain Hardin’s claim that “the unmanaged commons cannot possibly work once the population gets above a certain size”. Of the world’s common resources today, what are some examples of common resources that remain unmanaged?

    Water, air, and the earth's forests remain largely unmanaged and unregulated resources.

    5. Whose responsibility should it be to decide how common resources should be dealt with?

    Management of common resources should probably be a shared responsibility of all of the governments on the planet. Treaties, etc. can help in this regard.

    6. Do you agree with Hardin’s claim that “the world cannot possibly live at the American standard of living at its present population size”? Which of his predictions do you think is most likely to occur: Will the American (and Western European) standard of livAing have to go down or will the number of people in the world have to be reduced? Or is there a third possibility? Discuss.

    I agree with Hardin's assertion that “the world cannot possibly live at the American standard of living at its present population size". Of the two options, I think that former is more likely, though, I don't think that the American standard of living will have to decline, but rather will have to adapt. Hardin is, however, correct in saying that the present American standard of living is unsustainable.

  5. sfu99xon 22 Nov 2012 at 1:46 am

    1. He claims that Karl Marx’s idea would not work for a larger crowd. Explaining that as the population increases, with each person entitled to their own share, there will simply not be enough of whatever it is to go around.

    2. The pasture is a common good, shared be everyone, and not anyones private property. With people free to run cattle and the like on the pasture, people will eventually want to run more and more. However the space is limited, and therefore cannot cater to the growing population.

    3. By dividing up the pasture into smaller private properties, or by appointing a manager to control the rules.

    4. With unmanaged common goods, although it can cater to a smaller population as there is enough to go around. Once the population grows, everyone expects to have their own share, but since the common good is limited as it is, it will not be able to cater to this growing population. An example is fish in the sea, as the fishing industry grows, with better technology and a larger population to feed, there simply will not be enough fish in the sea.

    5. Everybody’s responsibility. Government, large international bodies, UN.

    6. Yes. I think there is a third possibility. Perhaps investing in other methods to keep up this standard of living, therefore relieving stress from the current resources.

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