Week 6: Tragedy of the Commons Flashcards
Define the tragedy of the commons according to Hardin
A situation where individuals, acting in their own self-interest, overuse and deplete a shared resource, leading to its degradation or destruction, despite knowing that this behavior harms the whole group in the long run.
What is a common property resource?
A resource that is accessible to everyone (nonexcludable) but whose use reduces the quantity or quality available to others (rival). Examples: fisheries, groundwater, rivers.
What is meant by “rival” and “nonexcludable”?
Nonexcludable Good: A good that cannot easily exclude potential users (e.g., clean air).
Rival Good: A good where one person’s use diminishes the availability to others (e.g., fish stocks).
What could be a common? Give three examples
Groundwater: Aquifers and underground water sources that can be accessed by multiple users, where over-extraction can lead to depletion and reduced water availability.
Public Beaches: Coastal areas open to everyone, which can become overcrowded and polluted if not managed properly.
Pastureland: Open grazing fields used by herders, where overgrazing can degrade the land and reduce its ability to sustain livestock.
Groundwater: Aquifers and underground water sources that can be accessed by multiple users, where over-extraction can lead to depletion and reduced water availability.
Public Beaches: Coastal areas open to everyone, which can become overcrowded and polluted if not managed properly.
Pastureland: Open grazing fields used by herders, where overgrazing can degrade the land and reduce its ability to sustain livestock.
Why do individual exploit a common good?
Self-Interest: Each person aims to maximize their own benefit from the resource, such as gaining more fish from a lake or more pasture for their animals, without considering the long-term impact on the resource.
Short-Term Gains vs. Long-Term Consequences: People are often driven by immediate rewards, such as profit or increased resources, rather than the long-term health of the common good. They may believe that the resource will not be depleted soon or that others will also exploit it anyway.
Lack of Regulation: When there are no rules or restrictions on the use of a common resource, individuals may feel free to use as much as they can, believing that if they don’t take advantage of it, others will.
Diffuse Responsibility: In a shared resource, the negative effects of overuse are spread across all users, so individuals may feel that their own contribution to the problem is small and won’t make a significant difference.
Fear of Missing Out: Individuals may exploit the resource out of fear that if they don’t use it, others will, leading to a mentality of “use it before others do.”
How do you calculate the total revenue/total value?
Total revenue (TR) is calculated by multiplying the price at which a product is sold by the quantity of that product sold. The formula for total revenue is:
Total Revenue (TR)=Price per Unit (P)×Quantity Sold (Q)
How do you calculate the total cost?
Cost per unit * number of units
A unit could be a well, boat, or factory.
How do you calculate the total net revenue?
Total Net Revenue = Total Revenue – Total Cost
How do you calculate the marginal revenue per boat, well, company etc.?
Marginal Revenue = Total Revenue / Quantity
means the difference between two units of wells/boats/factories etc.
How do you calculate the marginal cost per boat, well, company etc.?
Marginal Cost = Total Cost / Quantity
How do you calculate the average revenue per boat, well, company etc.?
Average Revenue = Total Revenue / Quantity
How do you calculate the net revenue per boat, well, company etc.?
Net Revenue (per boat) = Average Revenue – Marginal Cost
Explain the concept of constant returns?
constant returns to scale a proportional increase (or decrease) in one or more inputs results in the same proportional increase (or decrease) in output.
Explain the concept of diminishing returns?
diminishing returns a proportional increase (or decrease) in one or more inputs results in a smaller proportional increase (or decrease) in output.
Explain the concept of absolutely diminishing returns?
absolutely diminishing returns an increase in one or more inputs results in a decrease in output.
Why does economic efficiency not work when confronted with common goods?
The forces of free entry and profit maximization at the individual level, which usually work to promote economic efficiency, have exactly the opposite effect in the case of a common property resource. These forces encourage overuse, which ultimately eliminates any profitability in the industry and destroys the natural resource. The economic explanation is that e.g. fishers have free access to a valuable resource—fish stocks. Economic logic tells us that an underpriced resource will be overused, and a resource priced at zero will be squandered.
What is social efficiency and when does the socially efficient equilibrium occur?
Social efficiency occurs when resources are allocated in a way that maximizes the overall welfare of society. This means that the total benefits to society from the use of resources exceed the total costs associated with those resources.
Socially efficient equilibrium occurs when:
marginal social cost = marginal social benefit
When do we achieve net social benefit?
Net social benefit is the difference between the total benefits that society derives from an economic activity and the total costs incurred in that activity. It provides a measure of the overall economic value generated by a project, policy, or resource allocation.
Net Social Benefit (NSB)=Total Social Benefits (TSB)−Total Social Costs (TSC)
How do you determine the correct price of a license fee (e.g. fishing license)?
The “correct” license fee is the difference between average revenue and average cost at the efficient level of effort. The license fee effectively moves us from the inefficient open-access equilibrium to the efficient outcome.
What are the advantages and disadvantages of charging a license fee?
Advantages of Charging a License Fee
Resource Management: Helps regulate fishing efforts, preventing overfishing and promoting sustainability.
Revenue Generation: Funds conservation efforts, research, and management programs for fisheries.
User Accountability: Encourages responsible use of resources by establishing ownership and accountability.
Data Collection: Provides valuable data on fishing activities and participant numbers for better management decisions.
Disadvantages of Charging a License Fee
Access Barriers: May limit access for low-income individuals, reducing participation in fishing.
Compliance Costs: Increased administrative costs for enforcement and monitoring of licenses.
Market Distortion: Can lead to unintended consequences if fees are set too high or low, affecting market dynamics.
Resistance from Stakeholders: Potential pushback from fishers who may view fees as burdensome or unfair.
What is Ostrom’s perspective on the tragedy of the commons?
Diversity of Solutions: tragedy of the commons is not inevitable. Communities have historically developed effective self-governance systems for managing common-pool resources (CPRs).
Human Cooperation: Ostrom highlights the capacity for humans to cooperate and create rules that enable sustainable resource management.
Empirical Evidence: Her analysis is based on empirical studies of various case studies where local communities have developed their own governance systems.
Flexible and Contextual Solutions: Ostrom advocates for flexible, context-specific approaches rather than a one-size-fits-all solution. She stresses the importance of institutional diversity, indicating that different communities may require different strategies based on their specific circumstances and cultural contexts.
What does Ostrom criticize about Hardin’s work?
Ostrom challenge Hardin’s view, arguing that his perspective oversimplifies the problem by assuming individuals are unable to self-organize and manage common resources sustainably.
Contrary to Hardin’s pessimistic outlook, Ostrom present evidence that for thousands of years, resource users have developed successful self-governance systems.
How does Ostrom characterize Open Pool Resources?
To better understand common-pool resource problems, we must separate concepts related to resource systems and those concerning property rights. We use the term commonpool resources (CPRs) to refer to resource systems regardless of the property rights involved.
CPRs include natural and human-constructed resources in which (i) exclusion of beneficiaries through physical and institutional means is especially costly, and (ii) exploitation by one user reduces resource availability for others.
What types of CPR Users are there according to Ostrom?
Users of a CPR include
those who always behave in a narrow, selfinterested way and never cooperate in dilemma situations (free-riders);
those who are unwilling to cooperate with others unless assured that they will not be exploited by freeriders;
those who are willing to initiate reciprocal cooperation in the hopes that others will return their trust; and
perhaps a few genuine altruists who always try to achieve higher returns for a group.
