Saturday, May 14, 2011

No Tragedy Of The Commons

A comment I posted on The Percolator blog, "The Non-tragedy of the Bison Commons" by P.J. Hill:
Of course, the ancillary question is, "Is there ever a resource situation where 'tragedy of the commons' occurred?"

Elinor Ostrom documented actual resource situations where expected theoretical tragedies of the commons did not occur due to resource users' restraint.

What Garrett Hardin and others failed to consider is that the free rider, game theoretic approach ignores the loss of the future economic value of the resource to the current users.

In life, in many resource use situations, the users have a discount rate that preserves the resource, offsets the marginal value of a current additional use in favor of a future additional use, and prevents a 'tragedy of the commons.' To preserve their future value, resource users will establish, monitor and enforce rules to prevent depletion.

At times, government has misunderstood, overridden local user preservation efforts, set prices and established itself as overseer and that is when depletion most likely will occur.

Even now, government involvement in clean air and utilities, gives utilities incentives to pollute. Government regulates utility price increases and is reluctant to grant utilities consumer price increases. Regulators will not object, however, and often will mandate, an extensive capital expenditure to remove pollutants. Utilities like this because they get a rate increase, which covers their capital expenditures and gives them a fair return on the invested capital. Utilities get to make more money without increasing their customer base or usage.

Air was getting cleaner before The Clean Air Act and the improvements in the air seem to be following the same trend line it was before the clean air law. So even for air, where there should be extensive free rider and tragedy of the commons issues, it is unclear that it exists in this situation.

Unfortunately, tragedy of the commons is accepted as fact, and used as justification for many actions without empirical evidence that it would actually occur in the situation.

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