Lecture Notes: The Tragedy of the Commons

Introduction

• Tragedy of the Commons: A specific problem illustrating broader issues related to common resources.
• Commons: Lands not owned by anyone, freely used by all, often leading to overuse and eventual ruin.

Concept of Common Resources

• Example: Farmers let livestock graze, leading to depletion of grass as multiple farmers take advantage.
• Problem: No incentive for individuals to protect shared resources, leading to overuse.

Types of Goods

1. Private Goods

   • Characteristics: Rival and excludable.
   • Example: A loaf of bread.
     • Rival: If consumed by one, unavailable for others.
     • Excludable: Producer can restrict access until payment.

2. Common Resources

   • Characteristics: Rival but non-excludable.
   • Example: Public grazing lands.
     • Rival: Consumption by one limits availability to others.
     • Non-excludable: No restrictions on access.

3. Club Goods

   • Characteristics: Non-rival but excludable.
   • Example: Streaming services like Netflix.
     • Non-rival: Simultaneous consumption possible.
     • Excludable: Access restricted unless paid.

4. Public Goods

   • Characteristics: Non-rival and non-excludable.
   • Examples: Lighthouses, National Defense.
     • Non-rival: One's consumption doesn't limit another's.
     • Non-excludable: Benefits available to all, regardless of payment.

Economic Implications

• Government's Role: Often steps in to supply or regulate non-excludable goods due to the free rider problem.
  • Free Rider Problem: Individuals benefit without paying, leading to undersupply by markets.
  • Examples: National Defense, roads, parks, and mass transit.

Examples of the Tragedy of the Commons

1. Fishing in Open Ocean

   • Issue: Overfishing due to lack of property rights and regulation.
   • Example: Southern Bluefin Tuna nearing extinction.

2. Solution in New Zealand

   • System: Individual Transferable Quota (ITQ) for fish.
   • Outcome: Sustainable fish populations by capping total catch and allowing quota trades.

Broader Economic Problems

• Property Rights Issues: Difficulty in assigning property rights leads to problems in managing common resources and externalities.
• Example: Without ownership, no one charges fees for resource depletion or pollution.

Conclusion

• The tragedy of the commons highlights the need for careful management and regulation of shared resources to prevent overuse and ensure sustainability.