Thursday, August 11, 2005

Common Property

Tim Habb:
For a while now I've had an uneasy feeling that the Tragedy of the Commons framework was missing something.

Here's the Wikipedia explanation of the Tragedy:
The cause of any tragedy of the commons is that when individuals use a public good, they do not bear the entire cost of their actions. If each seeks to maximize individual utility, he ignores the costs borne by others. This is an example of an externality. The best (non-cooperative) short-term strategy for an individual is to try to exploit more than his share of public resources. Assuming a majority of individuals follow this strategy, the theory goes, the public resource gets overexploited.
So what do I think is missing? Take a simple example. Bob lives on an island with nine other people. On the island, each person has their own piece of land and access to a common area that has a grove of banana trees (is that the right term?). Anyone can go into the banana grove anytime and pick bananas. What do we expect to happen?

According to the Tragedy of the Commons framework, Bob will go into the grove whenever he is hungry, pick all of the bananas necessary to make him happy and then leave. Bob won't consider that each banana he picks makes it more difficult for someone else to pick a banana or that picking bananas too quickly might mean that others might have to go without bananas. What's even worse, Bob will assume that everyone else thinks like he does and 'if everyone else is doing it, why not me?'

Is that in fact what happens? Are the Bob's of the world so greedy that they will ALWAYS exploit common property resources? Consider the 1996 FAO report Halting Degradation of Natural Resources: Is there a role for Rural Communities?. The full report is summarized as:
To the initial pessimism of the tragedy of the commons' doctrine, a more optimistic phase has succeeded characterized by the belief that village societies are able to use their resources efficiently provided that the State does not interfere.
That's right. Some economists now believe that under certain conditions, the commons may be self-regulating. And that government regulation makes things worse. If that's the case, there must be something missing from the economic model. What's missing? In my view it's social interaction (or social norms).
For some time now, I too, have thought that the typical discussion of common property was off the mark. My answer is a bit different than Tim's, although perhaps consistent with his answer in terms of social norms.

First, I have to say that the Wikipedia reference to public goods seems quite incorrect to me. A public good has both the characteristics of nonrival and nonexcludable consumption. Discussions of the application of the "tragedy of the commons" often involve situations where exclusion is feasible but not enforced, and a public good is defined as such if exclusion is technically impossible (and not because of an institutional failure, most likely by government, to enforce exclusion). Further, the tragedy of the commons involves me getting mine before you get yours. This is precisely the property of rival consumption. The tragedy of the commons simply should not be associated with the concept of a public good.

Second, I think that sometimes discussions of the application of the tragedy of the commons involve situations that would be better modeled as club goods. For example, I think the tragedy of the commons has sometimes been used to discuss congestion of highways and perhaps outdoor recreation resources. Highways are owned and provided by a government. If we apply the model of a club good to the situation I think we better understand that for efficiency we need to satisfy three conditions: efficient membership size, efficient facility size, and efficient utilization. Efficiency with respect to outdoor recreation resources also seems to me best described by the club model.

Now, for my specific answer about what bugs me regarding the standard tragedy of the commons. I think that the very notion of "common property" in the "tragedy of the commons" is wrong. The so-called tragedy of the commons is really the "tragedy" of open access. It is the lack of exclusion, and not common ownership, that leads to the perceived problems.

Consider a condominium association. This seems to me to be the epitome of common ownership. There are several owners of a piece of land and there are buildings built upon the land that people reside or vacation in. The owners can utilize the "public" areas because of common ownership of the parcel. But, there is no "tragedy of the commons" with this common property ownership. The members of the condo assocation put a fence around their parcel of land, and they enforce exclusion not only to the parcel but also to the structures.

Now, this common ownership also has private property ownership involved. Specifically, each member of the association stands as a private property owner relative to every other member of the condo association. If the parcel were to be sold by the association, the distribution of the proceeds of the sale is well-defined with respect each individual private member of the association. The distribution of costs incurred by the association in maintaining the property is also well-defined with respect to each individual private member of the association. In addition, the condo association itself stands as a private property owner relative to every other private property owner in the wider community.

It seems that common ownership is not the reason we might see illustrations of a "tragedy of the commons", but rather open access and the failure to enforce meaningful exclusion.

This answer seems to me consistent with Tim's pointing to social norms because the social norms that protect against the "tragedy" do so because they imply exclusion and rules for access.

Wildlife has often been described as characterized by "common property ownership" and therefore subject to "tragedy of the commons." Here again I would point to the issue of exclusion and access. When state government manages wildlife such as deer, elk and trout, it essentially takes on the characteristics of a private property owner vis a vis hunters and fishers. The state wildlife agency excludes people from access to deer, elk and trout, first by requiring a hunting or fishing license. It also limits access to these resources with season length regulations, with regulations about size and type allowed to be harvested, and by the type of lure or catch and release regulation imposed. While many may complain about government's regulations with respect to fish and game, it seems to me there is no question that government acting as the private property owner vis a vis hunters and fishers maintains these resources over time, and the tragedy of open access (a.k.a. the commons) is avoided.

Note also that the government is quite a bit like the condo association in that every citizen has an interest in deer, elk and trout. Every citizen is a private property owner, and there are well-defined rules for each owner's participation in the decision making of the state government and of the wildlife agency. It is very much like we all share common ownership in government's ownership of deer, elk, and trout, and at the same time government is the private property owner that restricts access to deer, elk and trout so these resources are not exhausted. State wildlife agencies are really like condo associations. And, I would also add that state wildlife agencies are also very much like the clubs we model with our concept of a "club good."

No comments: