Holt 7525-9 S15_IT

A common good is nonexcludable. Nonpayers cannot easily be excluded from consuming the
good.
Example 15: Fishing in Lake Springfield has never been subject to restrictions. The lake has
never been popular for fishing. People complain that the fish taste funny. So there has never
been a reason to incur the cost of placing limitations on how many fish any one person can catch
from the lake. There were never so many fish removed from the lake to significantly affect the fish
population.
Because a common good is nonexcludable, consumers will tend to overconsume the good.
Example 16: Due to the publicity it receives from a popular television show, the Monty has
become a valuable fish. Aquariums will pay hundreds of dollars for each one. Unfortunately,
Montys are unable to reproduce in any environment other than Lake Springfield. Something in the
water. Ideally, the Monty would be fished out of Lake Springfield no faster than it can reproduce
and sustain its population. If Lake Springfield were privately owned, its owner would be motivated
to avoid overfishing. But since the lake is a common good, each person who fishes the lake will
be motivated to catch all the Montys that they can before someone else catches them all. The
Monty will be fished to extinction.
The tendency to overconsume common goods is called the “tragedy of the commons”. Historical
examples include the hunting to extinction of the passenger pigeon (which was once the most
common bird in North America) and the hunting to near-extinction of the American Bison. Other
examples include traffic congestion, overfishing the oceans, overcrowded National Parks, and
environmental degradation.
The tragedy of the commons can be analyzed as an externality problem. Each person who
consumes a common good is receiving a private benefit and generating both a private cost and
an external cost (the reduction of the amount of the common good available for others to
consume). As long as the marginal private benefit exceeds the marginal private cost, the person
will continue to consume.
Example 17: As long as the benefit to Homer of catching one more Monty from Lake Springfield
exceeds the cost to Homer, he will continue to catch more Montys. He will ignore the external
cost that he is imposing on others.
The tragedy of the commons can also be analyzed as a type of prisoners’ dilemma.
Example 18: All of the people fishing for Montys in Lake Springfield would benefit if they could
agree to limit their catch in order to sustain the Montys in the lake. However, each person’s
dominant strategy is to catch as many Montys as possible, whether other people stick to the
agreement or break it.
One way to solve the tragedy of the commons is to turn the common good into a privately owned
good.
Example 19: If Lake Springfield were privately owned, its owner would be motivated to avoid
overfishing in order to sustain the population of Montys.
Example 20: According to the USDA, about 35 million cattle are slaughtered in the U.S. each
year. Yet there is no concern that cows will become extinct.
Another way to solve the tragedy of the commons is by government regulation or taxation to
prevent overconsumption.
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27 - 9 Market Failure