Almost everyone wants a piece of the multitudes of resources our planet has to offer, sadly, they are available only finitely. Much of these resources are imperative for human survival, unlike our endless wants and needs these are numbered. Owned by nobody, resources such as clean water, stocks of fishes, forests, oil are needed by everybody.
If I have to choose between you and me, I like me better, Charlaine Harris sums up accurately the relationship between human behaviour and self-interest.
At the centre of modern economics lies self-interest. It is the fountainhead of microeconomic theories. The selfish nature of human beings living in a community drives them to defect each other. These propositions are supported by economists like Adam Smith, Karl Marx, and the writings of Mandeville in the Fable of Bees. According to Adam Smith’s theory, the magic of the “Invisible Hand” of the market rests in the idea that the public benefit is reached primarily through the pursuit of self-interest and that the society benefits from the egocentric behaviour of the individuals engaged in the market mechanism.
However, that does not seem to be the case in reality. Individuals acting independently according to their own self interest, behave contrary to the common good of all users by excessively over utilising or depleting the shared resource by their collective action. This is because they are always in a state of fear that other individuals will over-utilize and make it extinct before others get to consume it. This selfish human behaviour towards the finite natural resources (commons) led to the problem of “Tragedy of the Commons” as coined by Garrett Hardin.
The term tries to explain the fact that unmatched commons in a world with unlimited desires and limited material wealth inevitably end in ruin and overexploitation of common property resources.
In the Nobita’s world with Doraemon
Let’s dive into the fictional world of the Japanese Manga and Anime series, Doraemon. The robot Doraemon travels back from the 22nd Century to help Nobita. For instance, these Doraemon robots are a limited resource; there are just 100 of them. They are owned by the entire community, not individually i.e. they are non-excludable. However, their consumption is rival in nature. These robots are used by shopkeepers to aid services to their customers. Even though they are finitely available they are sufficient.
Apart from the shop keepers, there are scrap dealers in the community. They found an opportunity to dismantle the Dorae robots and sell their parts in the market to earn a profit. So every time a scrap dealer dismantles a Dorae robot, it leaves one less Dorae robot for shop owners to utilize for providing services. This reduces the profitability of the shop owners as the rivalry of consumption intensifies. Thus, if all the robots are dismantled, the shops are dependent on the robots and will be at risk of going out of business.
According to the idea of common property resources which are Dorae robots in our case, nobody owns them. This means that everyone owns a right to enjoy their uses as everyone has the right to enjoy all-natural resources like land, water, air, nature, etc. As individuals, scrap dealers have a right to pursue their self-interest i.e. to earn profits. However, their urge to increase profits draws a path for the extinction of robots and leaves the business owners with no business and heavy losses.
The Game of Numbers!
In our example, all the parts of the Dorae robots once sold earns the scrap dealers a consolidated profit of $5,000 per year. The cost incurred is the time and effort involved in dismantling and selling the robots. If a scrap dealer takes away one Dorae robot, there are only 99 robots left to be utilized by the shop owners.
On the other hand, shopkeepers earn a consolidated profit of $10,000 per month by using Dorae robots. Now, if we divide this cost by 100 Dorae robots, each robot is worth $100 to the shopkeepers. This implies that the scrap dealers’ one-time profit of $5,000 will cost $120,000 per year to the shopkeepers. Additionally, each remaining 99 dorae robots will now be worth $101.0101 each.
Clearly, the costs incurred are higher than the profits earned in the community. In essence, the Tragedy of the Commons arises because of a ‘negative externality’. In our illustration, the shopkeepers face a negative externality from the scrap dealers in terms of losing profits or the fear of going out of business. This results in overutilization of resources ,because the people neglect negative externality.
Mitigating the tragedy
The tragedy occurs because economic theories are based on the lack of collectivism, the development of laissez-faire markets where there needs to be no checks and balances, where the market will correct itself to stable equilibrium loses its relevance in a set up of finite natural resources.
If the market fails to take these costs into account, the scrap dealers won’t have to compensate the shopkeepers for the loss that they are causing them, thereby, leading to excessive utilization of these robots. So, to prevent overutilization of Dorae robots, or like in the real world, preventing coal extractors to dig out coal greater than the capacity of the environment to regenerate, or releasing excessive waste into the environment greater than the carrying capacity, we need to establish a market system that approximates the value of these resources.
This concept is also often cited with its connection to sustainable development, economic growth, and protection of the environment. It has been used by environmentalists to associate this as the additional cause of global warming.
An example of a real life tragedy occurred in the case of “passenger pigeons”. After the immigration of Europeans in North America, passenger pigeons migrated across the sky in large numbers. As settlers started to settle farther in the continent, they started clearing forests which were home to the passenger pigeons and also started hunting these pigeons for food. In the mid-1800s massive numbers of pigeons were bought and sold in the markets as a food resource which led to their extinction by 1870. However, in the 1890s hunting limits were imposed by the government to save the pigeon population but the efforts did not prove to be fruitful.
A similar example is of the tragedy faced by the Bluefin Tuna. In the 1960s, the fishermen realized the tuna population was in danger and in effect to prevent their complete extinction, an International Convention for the Conservation of Atlantic Tuna (ICCAT) was formed in an effort to manage fish harvesting more sustainably.
There are various economists such as Ronald Coase and Elinor Ostrom who have played a key role by providing ways to mitigate this tragedy. Their seminal work is the foundation to achieve the right-utilization of common property resources and provide a path to sustainable economic development. Over many decades, Elinor Ostrom has documented how various communities in an economy manage common resources and documented that private property is the only effective way to prevent finite resources from getting depleted.
She demonstrated the existence of social control mechanisms that individuals in communities have come up with solutions to solve the problem of commons. Resource users themselves cooperate to conserve the resource in the name of mutual benefit.
On the other hand, Ronald Coase developed the idea of the Coase theorem and property rights. Coase theorem states that if the actions of one individual harm the actions of another individual then the latter can create an incentive for the former to either reduce or stop the action creating the harm. One way of creating an incentive is to enforce property rights. This style of solving such issues is done by assignment of theoretical and legal rights of resources to one of the groups by the mediator or appropriate authority. In our example of Dorae robots, if the right to use the robots was with the shopkeepers, then according to property rights, scrap dealers will have to compensate for the loss of revenue incurred by the shop owners if one Dorae robot is taken by the scrap dealers.
At the beginning of the pandemic in March, many countries reported that people started stockpiling essentials like toilet paper. People assumed that since everyone would stock up as well, a sole solution to preempt this scenario was to stockpile food and resources before the next person could. To prevent this tragedy, the government tried to calm people by assuring continuous food supplies and retailers tried to put up limitations on the number of items one could buy.
Certain modern solutions can also be articulated to mitigate the tragedy. This includes imposing government regulations that can limit the amount of common good that is available for use by any individual. Permit systems for extractive economic activities including mining, fishing, hunting, livestock raising, and timber extraction are examples of this approach. Similarly, pollution caps are examples of governmental intervention on behalf of the commons. Another solution for some resources is to convert common goods into private property, giving the new owner an incentive to enforce its sustainability. These general rules will help the concerned parties to reach an agreement where the use of common resources would be sustainable.
- In any economy with limited resources, there is always conflict between individual interests and the collective interests of the society.
- The comprehension of this friction, led to the development in the field of economics to disincentivize individualistic behaviour that caused damage to the whole group.
- Tragedy of Commons is an essential theory to be studied in the advancement of theoretical economics in order to frame effective policies.
- The intersection of private property and the counter action through government regulation in the ambit of the socio-economic system is the ultimate normative outcome of ‘tragedy’.