Reflections on the Commons (Chapter 1)

The objective of the chapter is to introduce students to the concept of tragedy of the commons,
illustrated in a game theoretic framework and understand the possible policy mechanisms that
can help resolve this problem. Developing an appropriate policy proposal however depends
upon the resource under consideration and requires rigorous research and development of a
theoretical framework. In this context, understand the pros and cons of each of these possible
mechanisms and their application to preservation of specific environmental resources. Based on
existing empirical evidence on use of these resources the author has defined some general
principles governing the optimal use of these resources, which are explained in the last section.

Read the reading following the bullet points below:

 Understand the meaning of “tragedy of the commons”

 The game theoretic approach to tragedy of the commons, as illustrated in the chapter is
particularly important (this is explained in Figure 1.1) (you should know how to calculate
dominant strategy and Nash equilibrium from basic game theory for this)

 Understand that the main reason for tragedy is free riding (discussed on p. 6 of the
chapter). There could also be internal and external factors leading to intrinsic differences
between those who optimally use/extract environmental resources vis-à-vis those who
overexploit these resources (explained on p. 23 of the chapter).

 Tragedy of the commons occurs since individuals do not get an opportunity to interact
with each other prior to making their choices (i.e. whether to defect/co operate),
otherwise they can make a binding contract to commit themselves to a cooperative
strategy. It has been proven empirically that in the presence of such contracts, both
herders share the sustainable yield levels of the meadow and costs of enforcing the
agreement equally as long as each herder’s share of the cost of enforcement is less than
10 (result stated on p. 17 of the chapter). Such contracts provide incentives for optimal
use of natural resources by internalizing the externality (the resulting game is illustrated
in Figure 1.5).

 What policy prescriptions have been suggested to solve this problem?

There are broadly 2 approaches – Leviathan (complete state control – govt uses coercion
or imposes legal restrictions pertaining to extraction of the resource) and complete
privatization (which refers to a complete division of plot of land among individual
farmers or assigning exclusive rights to harvest from the resource). Privatization may

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 help internalize the externality by convergence between private and social costs of
putting a marginal herd of animals into the pasture.

Understand the meaning of both approaches. Also note that the policy prescription is
specific to the resource being exploited, its usage, social and cultural norms determining
its use, among other factors. These policies are to be understood keeping in mind that
there is no one policy which fits all. (One of the successful policy regimes is the Alanya
program of controlling overfishing – understand the implementation of the program and
reasons for its success).

State control may help resolve tragedy of the commons under complete information, as
illustrated in Fig. 1.2. Under incomplete information however the leviathan strategy may
not work (illustrated in Figs 1.3 and 1.4). It has also been seen that nationalization has not
been successful in protecting communal forests in Thailand, Niger, Nepal and India.

 The success / failure of these strategies depends upon the institutional mechanism in
place (which refers to the particular options available, sequencing of those options,
information provided, relative rewards and punishments assigned to different sequences
and moves – discussed in detail on p. 24 and 25 of the chapter). The importance of the
institutional structure is discussed on p. 15, the key result being that many solutions exist
to cope with many different problems, and varies greatly from one situation to the next.

 Understand the need for more research and extensive theoretical inquiry explaining the
underlying rationale behind extraction of natural resources. It is essential to develop a
theory of collective action whereby a group of principals can organize themselves
voluntarily (examples include self organized enterprises and cooperatives).

 The general principles designed for optimal use of natural resources involve addressing a
common set of problems, namely, free riding, solving commitment problems, arranging
for supply of new institutions and monitoring individual compliance with the sets of
rules.

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