Tragedy of the Commons
[12.03.2012, David Schmidtz, CONSERVATIVE LETTERS]

Conservative Letters

Today the word ‘tragedy’ is used to refer generically to anything really bad. The word has an older meaning, though, referring to literary works that depict a protagonist caught up in events inexorably leading to his or her doom. Some of that older meaning is implicit in the logic of what we now call the tragedy of the commons.

Suppose there is a plot of land. The land has a carrying capacity: a number of animals the land can sustain more or less indefinitely (see footnote No. 1). Suppose the parcel’s carrying capacity is 100 animals. The land is owned jointly by ten shepherds, each of whom owns ten animals for a total flock of 100 animals. The land is thus at its carrying capacity. As things stand, each animal is worth (let’s say) one euro to its owner, so that, at carrying capacity, 100 animals are worth 100 €. Crucially, although the ten shepherds treat their individual flocks as private property, they jointly treat the land as one large pasture, with no internal fences, so that each of their animals grazes freely.

10 shepherds x 10 animals each = 100 animals.
Individual flock’s value = 10 animals x 1 € = 10 €
Total flock’s value = 100 animals x 1 € = 100 €

Now suppose one shepherd adds an eleventh animal. We now have 101 animals altogether, and thus have exceeded the land’s carrying capacity. There is not quite enough food per animal now; therefore they are a bit leaner, and the value per animal drops to 0.95 € per head. The total stock of 101 animals is now worth 95.95 €, which is 4.95 € less than the total stock was worth before, when it was within the land’s carrying capacity.

So, why would a shepherd add the extra animal, when it so clearly is a losing proposition? At the original carrying capacity, the individual flocks of ten were worth 10 €. Having added one more sheep, the shepherd now has eleven and each is worth 0.95 €. That works out to 10.45 €, which means that the individual shepherd actually made a profit of 0.45 € by adding the extra animal, even though the value of the total stock went from 100 € to 95.95 €. Although the total cost to the group of adding the extra animal exceeded the total benefit, the individual shepherd receives one hundred percent of the benefit while paying only ten percent of the cost. The other ninety is paid by the other nine shepherds: they own ninety percent of the animals, so they suffer ninety percent of the loss involved in the falling price per head. Individual shepherds, though, see only individual costs and benefits, and act accordingly. The logic of the commons has begun its seemingly inexorable grind toward its tragic fate.

Formally, a commons becomes a commons tragedy when collective use of a commune or open access commons exceeds carrying capacity. The tragedy of the commons is one version of a more general problem of externalities. An externality, also called an “external” or “spillover” cost, is that portion of the cost of a decision borne by someone other than the decisionmaker. We say cost is “internalized” when the arrange¬ment is changed so that decisionmakers now bear the entire cost of their deci¬sions. One general purpose of property institutions is to internalize externalities, preventing people from shifting the cost of their activities onto others. Ideally, property regimes should evolve, internalizing externalities as they become significant — both “positive” externalities associated with productive effort and “negative” externalities associated with misuse and overuse of commonly held resources. A system is more likely to be economically and ecologically sustainable to the extent that agents who decide how much of a resource to use pay the true cost of their decision. It is more likely to be a tragic commons to the extent that agents who decide how much of a resources to use do not have to pay the cost of excessive use, and cannot capture the benefits of individually modest use. Real world examples are all too common. Traces of commons tragedy can be seen in everything from overfishing of coral reefs to socialized health care systems where access to health care service is limited only by a patient’s willingness to wait in line. Worries about commons tragedies are implicitly common in debates about famine relief (should we bring food to the people?), immigration (should we bring people to the food?), and population control (how many more shepherds do we have a right to add?).

Private Property as a Solution to Commons Problems

In an unmanaged commons, individual shepherds are left to decide for themselves whether to step up the intensity of their resource use. They do not take full responsibility for the cost of their overuse, though, because the cost falls mainly on other members of the group of communal users. The payoff of overuse is negative for the group but positive for the individual who elects to overuse.

Is there nothing those shepherds can do? One option would be to cut their jointly owned territory into ten smaller parcels, so each shepherd owns a small parcel with its own individual carrying capacity. Under this new arrangement, instead of dispersing the environmental degradation over the entire commons, the damage is concentrated on the offender’s own private land. Thus, in the hypothetical example, instead of dispersing damages worth 4.95 € over a hundred animals and ten owners, the damage is concentrated within the individual shepherd’s own parcel. To keep the example simple, suppose the parcel covers an area one-tenth the size of the original communal plot. Suppose also that when the damage is concentrated in one-tenth of the area, the resulting damage is ten times as great per square foot. In that case, the flock of ten, which had been worth 10 €, is now a starving flock of eleven, worth about 5.05 €. The value of each animal has been cut roughly in half, a painfully obvious mistake. Consequently, under a system of individual parcels, everyone learns in a hurry not to add an eleventh animal.

Private ownership gives an owner a right to exclude. By conferring a right to exclude, the system gives an owner the opportunity to conserve a resource. In giving such an opportunity, the system also provides an incentive, because whatever owners save, they benefit from saving.

Footnote No. 1:
The concept of carrying capacity is somewhat problematic. While it points to something real, because there really are limits to what the land can support, such limits are not fixed. Carrying capacity is somewhat fluid, and a function of many variables. For example, whether Kruger Park in South Africa can carry 15,000 elephants depends on whether we want to leave room for rhinos, which is not simply an ecological issue.

David Schmidtz is Professor of Philosophy, joint Professor of Economics, and founding Director of the Center for Philosophy of Freedom at the University of Arizona.

David Schmidtz presented his lecture at the Conservative Economic Quarterly Lecture Series (CEQLS) held by the Conservative Institute of M. R. ©tefánik in Bratislava on March 12, 2012. More information is available here.

Article was published in Slovak language in Conservative Letters 02/2012, a newsletter of the Conservative Institute.

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