2.8.5 - Common pool resources

Question 1

Define common pool resources

Answer 1

Resources that firms and individuals can access in society without restriction
- Non excludable because they are naturally occurring
- Rivalrous because the consumption by one individual reduces availability to others

Question 2

Property rights

Answer 2

when an individual or firm has ownership of a resource; common pool resources do not have property rights; nobody owns them

Question 3

List the 4 market failures associated with common pool resources

Answer 3

• Non excludability and zero price
• External costs
• Developing countries
• tragedy of the commons

Question 4

Elaborate on non excludability and zero price

Answer 4

Zero price leads to the unsustainable use of common pool resources

Question 5

Elaborate on external costs

Answer 5

• There are often external costs associated with the use of common pool resources
• The use of common access resources now reduces their availability to future generations

Question 6

Elaborate on developing countries

Answer 6

People in poverty are often forced to exploit cheap resources available to them

Question 7

Tragedy of the commons

Answer 7

This theory argues that the use of common pool resources leads to a shared resource system where people overproduce goods using common pool resources

Question 8

List the 4 policies of common pool resources

Answer 8

• Assigning property rights
• Command and control regulation
• Collective self governance
• carbon tax

Question 9

Pros and cons of assigning property rights

Answer 9

Pros:
- Common pool resources now have owners and are excludable
- owners are incentivized to manage sustainability
- low cost

Cons:
- The owner might not have social efficiency in mind
- Legal costs associated with resolution of property rights
- Not always practical; eg oceans

Question 10

Pros and cons of command and control regulation

Answer 10

Pros:
- Forces firms to take action to reduce negative externalities
- Set of regulations that reduces environmental costs
- Can incentivise firms to develop tech that allows them to meet regulations

Cons:
- No incentives for firms beyond the set standard
- Increased production costs lead to unemployment and higher prices for consumers

Question 11

Pros and cons of collective self governance

Answer 11

Pros:
- Local communities know and understand their specific issues
- collective agreements more flexible than national regulations

Cons:
- Relies on the goodwill of participants
- Might take a short term view and not be sustainable
- Many issues are global scale and cannot be locally managed

Question 12

Pros and cons of carbon tax

Answer 12

Pros:
- focus on major source of pollution and incentives firms to switch to renewables
- revenue can be used to subsidize innovation for clean energy.

Cons:
- Increase energy price to consumers
- Business costs increase, potential unemployment
- Reduces business profits, leaving them with less money to invest in tech.