Tragedy of the commons
The tragedy of the commons (also called the problem of the commons) refers to how publicly available resources (the commons) are shared and used by firms. If too many firms share the commons, the commons can be degraded or destroyed, which results in little to no benefit to any of the firms involved.
The term was coined in 1968 by ecologist Garrett Hardin.
As an example, open fishing waters can be a commons shared by several fisherman. If only one fisherman is fishing there, they will have a higher rate of return than if they were sharing it with other fisherman. As more fisherman enter the fishing area, the rate of return decreases substantially. As long as output increases, and the economic benefits are higher than fishing elsewhere, fisherman will continue to enter the fishing area.
If too many fisherman enter the fishing area, output decreases and the rate of return for the fishermen involved decreases to a point where it is not economically beneficial for them to stay there. If left unchecked, continued usage of the fishing area by too many fishermen can cause the area to be completely exploited and devoid of fish, leaving the fishermen with a zero rate of return and out of business in that area.
Some other examples of commons are:
- Commonly owned land
- Underground aquifers
- Animal populations
There are several solutions to the tragedy of the commons. Before starting to use a commons, a firm can determine, usually by using a mathematical formula, whether it is economical for them to use the commons as opposed to conducting business elsewhere.
Depending on the commons, licenses can also be issued to limit the number of players involved. An example would be hunting licenses. Although the number of players becomes limited in this scenario, if done correctly, the commons can be preserved and continue to provide an economic benefit to those involved.
- The Tragedy of the Commons, 1968
- Gardner, Roy. Games for Business and Economics; John Wiley & Sons, Inc.; Hoboken, New Jersey. 118-122, (2003)
- The Concise Encyclopedia of Economics. The Tragedy of the commons