5.3 Tragedy of the Commons

Question 1

What are common access resources?

Answer 1

Common access resources are goods over which no private ownership exists. Examples include the air, sea (seafood and other minerals), and forests (timber and pulp).

Question 2

What is the tragedy of the commons?

Answer 2

The tragedy of the commons is the phenomenon where individual producers exploit the common access resource that maximizes their profit, ultimately leading to a depletion of the resource.

Question 3

What do individual producers consider in a free market?

Answer 3

In a free market, individual producers only consider their private costs of production, they ignore the full social cost of their actions (the negative externality in the form of costs to third parties) due to self-interest.

Question 4

What is the result of resource allocation at the private equilibrium in a free market?

Answer 4

Resources are allocated at the private equilibrium of P1 and Q1 in the market instead of the social optimum P* and Q*, resulting in overproduction and overconsumption in the market.

Question 5

What are the negative consequences of the overproduction of common access resources?

Answer 5

Overproduction and eventual resource depletion can lead to lost income and unemployment for current generations, and future generations lose out from the major source of future income that has been closed. Furthermore, they will not have the same access to goods developed from such resources in the future, reducing their material living standards.

Question 6

What is the end result of the overproduction of common access resources?

Answer 6

The end result is a misallocation of resources, allocative inefficiency, where too many resources are allocated to this market than is socially desirable. This generates a welfare loss with society bearing more cost than benefit with units beyond Q* being produced.