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The '''problem of the commons''' (also called the '''tragedy of the commons''') refers to how a publicly available resource can become run-down because no one has an [[incentive]] to maintain or improve it.

The '''problem of the commons''' (also called the '''tragedy 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.  

For example, imagine a large pasture where any farmer is allowed to graze his cattle. If a farmer wants to produce more milk, he must weigh the [[benefit]] of adding a new cow (more milk) to the [[cost]] (consuming more grass). For the individual farmer, the benefits of adding a cow, which he shares only with himself, far outweigh the costs, which are shared amongst all the farmers. If every farmer makes the same self-interested decision, eventually there will be too many cows for the pasture, and it will be destroyed. All of the farmers will then be without a place to graze their cattle, and all are worse off for their decision.

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<ref>Gardner, Roy. ''Games for Business and Economics''; John Wiley & Sons, Inc.; Hoboken, New Jersey. 118-122, (2003) </ref>.

Some other examples of commons are:

The problem of the commons is not just a theoretical concept. Any time where a group uses a [[resource]] which is owned by all (or by no one) the problem of the commons usually occurs. Some examples are:

*Commonly owned land

*Commonly owned land

*Open commercial [[fishing]] waters

*Underground aquifers

*Global [[pollution]]

*Animal populations

==Solutions==

==Solutions==

One solution to the problem of the commons is to [[privatize]] the pasture, that is, give ownership of the pasture to one or more of the farmers. If the farmer owns the pasture he no longer shares the cost of adding cows with any one. Now a self-interested decision made by the farmer no longer leads to his own destruction. This approach has been taken to save many common areas, such as pastures and fishing waters. Applying the idea of a problem of the commons can even be used to reduce pollution.

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.

==External Links==

==External Links==

*The Concise Encyclopedia of Economics. [http://www.econlib.org/library/Enc/TragedyoftheCommons.html ''The Tragedy of the commons'']

*The Concise Encyclopedia of Economics. [http://www.econlib.org/library/Enc/TragedyoftheCommons.html ''The Tragedy of the commons'']

[[Category:Economics]]

[[Category:Economics]]

[[Category:Political Doctrines]]

[[Category:Political Doctrines]]