Tragedy of the Commons

The tragedy of the commons is the depletion of a shared resource by users who each act in their own interest. When a pasture, fishery, aquifer or the atmosphere is open to all and nobody can limit access, every user gains the full benefit of taking a little more while the cost of depletion is spread across everyone. Each extra cow, catch or tonne of emissions looks worthwhile to the person who adds it, yet together they exhaust the resource.

The phrase was popularised by the ecologist Garrett Hardin in a 1968 essay in the journal Science, drawing on an 1833 lecture by the English economist William Forster Lloyd about overgrazed common land. In economics it describes common-pool resources, which are rival but non-excludable. It is a sibling of the free-rider problem, which concerns underpayment for public goods, and an important source of market failure.

Imagine an office with a shared jar of biscuits that is refilled once a week. Taking one more biscuit costs you nothing and tastes good. But if everyone thinks that way, the jar is empty by Tuesday and most people go without for the rest of the week.

Nobody needs to be greedy for this to happen. Each person's extra biscuit is small; it is the combined effect that empties the jar. The fix is usually some kind of rule: a sign-up list, a limit per person, or someone put in charge of the jar.

The core problem is a negative externality that users impose on each other. When a fisher lands an extra tonne, the remaining stock shrinks, so every other boat must work harder to catch the same amount. Because the individual fisher ignores this cost, effort expands until the average return, not the marginal return, is driven down to the cost of fishing. Any economic rent that the resource could have yielded is dissipated. The fisheries economist H. Scott Gordon described this outcome in 1954, before Hardin's essay.

In game-theory terms, the situation has the structure of a many-player prisoner's dilemma: restraint is collectively better, but overuse is each player's best response, so the Nash equilibrium is depletion, an outcome that is not Pareto efficient.

• Fisheries. The collapse of the northern cod off Newfoundland led Canada to impose a fishing moratorium in 1992, putting tens of thousands of people out of work.
• Groundwater. Farmers drawing on a shared aquifer, from the US High Plains to parts of South Asia, can lower water tables faster than they recharge.
• The atmosphere. Greenhouse gas emissions treat the climate as an open dump, which is why many economists favour a carbon tax or tradable emission permits.
• Congestion. Unpriced roads and airport slots become overcrowded; congestion charges, as in London since 2003, price access to scarce capacity.
• Shared financial resources. Some economists describe systemic risk and the overuse of shared liquidity in a crisis as commons problems, one rationale for macroprudential regulation.

Hardin argued that commons must either be privatised or controlled by government. Economists now identify a wider set of tools.

• Private or quasi-private rights. Assigning property rights gives owners a reason to conserve. Individual transferable quotas in fisheries, used by New Zealand since 1986 and by Iceland, give each holder a share of the allowed catch.
• Prices and taxes. A Pigouvian tax or user fee makes each user pay for the damage they impose.
• Regulation. Catch limits, seasons, licensing and permits cap total use directly, though they need enforcement and can be weakened by regulatory capture.
• Community governance. Elinor Ostrom's Governing the Commons (1990) documented long-lived local institutions, such as Swiss alpine meadows and Spanish irrigation systems, that manage shared resources through their own rules, monitoring and graduated sanctions. Her work earned her a share of the 2009 Nobel Prize in economics.

The Coase theorem suggests that once rights are clearly defined and bargaining is cheap, users can negotiate an efficient level of use; in practice, the large number of users of most commons makes bargaining costly.

Hardin's essay has been criticised on several grounds. Historians argue that traditional commons, such as English common land, were usually not open-access free-for-alls but were governed by local customs that limited grazing, so the "tragedy" mostly afflicts unregulated open access rather than true community property. Ostrom's research showed that neither privatisation nor state control is always required. Hardin also used the argument to support coercive population control and restrictive immigration policies, positions that many scholars reject. Some economists add that privatising commons can raise questions of fairness when previously shared resources are handed to a few owners, while others stress that well-designed rights have restored depleted fisheries.

• The Nobel Prize: Economic Sciences 2009