Commons: Tragedy or Comedy?

*The four categories of goods, given their degree of excludability and rivalry*

Definition “rivalrous and non-excludable goods”. Big words. And what do they mean, exactly? Well, let’s break it down. First, excludability: an excludable good is a good/resource that someone can bar (or limit the access to) other people from using. Second, rivalry. Despite the name, rivalrous goods are not the ones that lose their temper when their football team is losing. Rivalry simply means that if one person uses the good, someone else will either have less of the good to use or be unable to use it at all. Think of the shirt you are (presumably) wearing now: while you wear it, no one else can. Music, for example, is just the opposite – if someone is listening to a song, there won’t be any less of the same song for others to hear (unfortunately, in some cases). With these 2 characteristics, we divide goods into 4 categories: private goods, the excludable and rivalrous ones; club goods, excludable but non-rivalrous; public goods, neither excludable nor rivalrous; and the ones we will be focusing on, the non-excludable and rivalrous goods, the commons.

So, common goods are the ones that everyone has access to (or at least it would be hard to block anyone from using them), while also being diminished with every utilization, that is, there is progressively less quantity available the more they are used. Now, you may recognize this description as the one of most natural resources: fish in the sea, mineral deposits, the shells at the beach…Consequently, it is easy to see the problem that arises from these characteristics: their sustainability.

THE TRAGEDY

The Tragedy of the Commons. Despite the rather theatrical name, it is neither a Shakespearean play nor a Mexican soap opera (we’ve checked).

This Tragedy is an economic term coined in 1968 by Garrett Hardin to describe the phenomenon of over-exploitation of common-pool resources: users of the common good behave opportunistically, seeing the resource as “free”, since they cannot be excluded from it, so they reap all the benefits without taking in the costs, which ultimately leads to depletion.

We do seem to have a tendency to explore every resource we can until thorough extinction (I mean, when was the last time you saw a dodo around?), with no regard for their long-term (or even short-term) sustainability. The rationale is rather simple: if it belongs to everyone, it belongs to no one, so you should be quick to grab as much as you can before it’s over.

The problem with this is, as we’ve seen, the risk of depletion. And this is not merely childish or selfish behavior. This is, in fact, very standard rational economic behavior. Every user can be immediately better-off by taking more than what is sustainable to take, so they do it, until inevitably the resource is gone. Individuals have no direct incentive to behave sustainably. Sustainability is often in the best interest of a community, but not necessarily of a single person. See the problem?

NEED A SOLUTION? ELIMINATE THE PROBLEM

This is the standard economics’ layout of the issue – and standard economics presents a solution. Think of a small forest, of around 30 trees, and 3 lumberjacks. Every year, in the spring, the lumberjacks come and take down trees to sell the wood. Now, the forest is capable of regenerating: if they leave at least 3 trees standing, next year 30 will be there again (it’s a very mathematically exact forest). What would be optimal? Easy, right? Each lumberjack could take down 9 trees, and all could come back next spring to get more. But each one has an incentive to outperform the others, sell a lot of wood and get rich. So, each takes as many trees as they can, leaving none in the forest. How can we prevent this?

Whatever we do, the good will not magically become non-rivalrous, but we can do our best to make it excludable. In other words, if the problem arises from collective ownership of the resource, then the solution is surely to change that ownership form. One way to do this is to effectively switch ownership to the government, who then regulates who has access and how much of the resource can be consumed. In our magic forest example, this would mean passing a law stating that each lumberjack could take no more than 9 trees every year.

It should be noted that this solution requires some form of enforcement – a surveillance authority to ensure regulations are upheld, as well as a penalty in case of breach of the system. These are usually provided, or at least legitimized, by the same governmental authority that controls the resource.

Such top-down, centralized solutions suffer from certain inherent problems, namely rent-seeking (one entity trying to gain some profit without further contributing to the productivity of the system – like governmental officials trying to collect bribes from the citizens to grant them access to the resource), principal-agent conflicts (when there is a conflict of interest between the citizens and the agent meant to act in their behalf, like the government representative) and knowledge issues (the government may not be fully accurately aware of the needs of the population).

If state control is not the ideal answer, then maybe we should go in the opposite direction: privatization. Maybe each person could be given a part of the resource to explore (say, each lumberjack is given a certain amount of trees), and trade between themselves, so that each gets the best deal they can potentially obtain.

*If state ownership is not the solution, how about privatization?*

Unfortunately, this is not a perfect solution either. Besides the physical impracticability of dividing up some of these goods, there is again the issue of enforceability. Besides, this solution comes with a problem at the very beginning: each person is given a part of the resource to exploit – but… given by whom? Often enough, such a project of privatization requires a government taking control of the resource and then assigning its exploration as it sees fit. So, at its very core, this solution is not so different from the first. Both rely on a higher authority defining and enforcing regulations to limit the use of the common good. They follow a very simple logic: if commons are so tragically doomed, then our efforts should focus on tackling their core characteristics, what makes them common goods in the first place.

So far, we have looked at the problem and formulated solutions assuming this is how individuals act when faced with a resource to share. But do we always have the behavioral standards of a preschooler? Thankfully, no. In fact (poor dodos aside), we are actually very capable of collectively managing common resources.

OSTROM’S THEORY

In 2008, economist Elinor Ostrom was awarded the Nobel Prize in Economic Sciences (becoming the first woman to receive it). The reason? Her breakthrough research on common-pool resource management.

Ostrom took a different approach to the problem. Hardin had looked at common goods and their rivalrous and non-excludable nature and tried to explain their over-exploitation based on standard economic theory’s behavior predictions: people behave selfishly and without considering others or the future; therefore, the Tragedy is only natural. Ostrom, on the other hand, decided to start from observation, not from assumptions. And what did she discover? Examples, many in fact, of sustainable management of a common-pool resource! This real-life examination allowed her to arrive at a new theory. In all these successful cases, the management was done by the local communities! Yes, the solution was right there in the name all along.

So, all we need to do is to leave common goods alone, trusting local communities to handle the matter? Great! Economics is so easy (…said any economics freshman right before their first midterm season…). The theory is, of course, slightly more elaborated.

Ostrom laid down a set of conditions under which local community management – what she called management through collective action – of common resources can be optimal:

Define clear boundaries of the common resource

Rules governing the use of common resources should fit local needs and conditions

As many users of the resource as possible should participate in making decisions regarding usage

Usage of common resources must be monitored

Sanctions for violators of the defined rules should be graduated

Conflicts should be resolved easily and informally

Higher-level authorities recognize the established rules and self-governance of resource users

Common resource management should consider regional resource management

Let’s think of what this looks like in the previous 30-trees-for-3-lumberjacks example:

First, the community should clearly set down who the resource is meant for. By community, we mean the people who live and work within the ecosystem the forest in inserted in – a village where the lumberjacks live, the market they trade on. The group allowed to explore the resource is the lumberjack professionals – they are the ones who make their livelihoods from the forest. It should also be clarified how much of the resource can be taken, and the lumberjacks should take part in the rule making. The people in the village know better than anyone how the forest works: they know at least 3 trees must be left for the forest to regenerate, and have an interest in its sustainability, and the lumberjacks want to reap the benefits of its exploration. Besides, people are more likely to comply with rules they helped write themselves. Of course, the forest must be monitored, and if someone takes more than their share they must be punished by the community. But this punishment should be gradual – not immediately banning, but warning, sanctioning and informal social condemnation (the offender should feel ashamed to break the rules). If there is any disagreement regarding the forest, it should be able to be resolved quickly, in an informal way. The community should also feel assured that their rules will not be overturned by a higher authority. Lastly, they should remember that the forest does not stand alone. It is part of a larger system that should be had in mind, so that resources are explored in a way that does not hurt the rest of the system.

CONCLUSION

Common-pool resources management is a puzzling subject. They can be invaluable tools for the subsistence and development of local communities, or they can be consumed to extinction in a heartbeat. Ostrom’s Co-operative Collective Action Management Theory is a clever and helpful way to think about sustainability, one of the greatest challenges of our century. Her work proves observation and context are important tools for economic research, perhaps the most important ones.