Written by : Ronak Pol
Published: 10th September 2016
In her book “Governing the Commons” Elinor Ostrom (2009 Nobel Prize recipient in Economic Sciences) talks about ways how self-organized and self-governing institutions can provide a reliable solution to the problems related to “Common Pool Resources” (CPR).
Using ideas derived from this book we will try to solve our modern-day “Tragedy of Commons” when it comes to problems like water pollution and possibly start a policy debate on how we can solve these issues given a new framework.
Understanding the “Tragedy of Commons”
Before getting into the tragedy of commons, which I agree is a histrionic title, let us first understand what Common Pool Resources (CPR) are.
Unlike Public Goods, CPR’s are “Rivalrous but Nonexcludable”. Meaning if an individual consuming the good uses it up, then someone else cannot use it (rivalrous). Also, you cannot directly stop someone from using it making it nonexcludable. An example of such resources can be marine life in an inland water body or a grazing pasture.
The idea of “Tragedy of Commons” was introduced in 1968 by Garrett Hardin who highlighted that “individual users acting independently according to their own self-interest behave contrary to the common interest of all users by depleting that resource through their collective action”.
But the theory assumed a farcical assumption that individuals who came to graze their cattle did not communicate with each other, which is obviously a flawed assumption and the implications of which we will explore later. He imagines a pasture that is open to all and people bring their livestock to graze on this pasture. Naturally better-fed livestock yields better produce, so it is in the best interest of any herder to bring as much livestock as he can to this pasture in order to leverage their produce. But all pastures have a “carrying capacity” which is the maximum amount of cattle that it can hold, beyond which the balance of grass to livestock is untenable and the quality of the pasture deteriorates.
Here in lies the dichotomy – what is in the best interest of the individual is not in the best interest of the community. A trained economist can easily draw parallels between this and Prisoner’s Dilemma and there sure is a Game Theory based explanation the tragedy.
“Tragedy of Commons” occurs when individuals neglect the well-being of society in the pursuit of personal gain and this is what we are looking to solve through policy.
Popular view of solving a CPR problem.
Before 1990 when Dr.Elinor published her work on this a lot of policy discourse was directed in one of two ways.
- Government/State intervention with regulatory control.
- Privatisation through the allocation of Property Rights.
There is a fundamental flaw in both these approaches. The first approach assumes that an external agent (state) will be better able to install regulations regarding an issue, nuances of which the state might be foreign to and will also effectively monitor actions of participants who default. Beyond the policy bias issues, the cost involved in surveying and installing an effective enforcement mechanism makes cost effectiveness of this approach questionable.
The literature on privatisation focuses on dividing the land between various claimants who will then put restrictions (fences in the case of pastures) to safeguard their part of the land and working in their private best interest giving a socially desirable outcome. Plausible at first this does not account for discrepancies like heterogeneity in the quality of pasture and carrying capacity of the soil. Plus not all CPR’s can be allocated property rights that easily for e.g. Marine animals have a tendency to migrate with water currents making an allocation of a certain part of water real estate to a trawler inefficient.
The “New Institutional Approach”
So what other options do we have? First of all debasing the assumption of no communication is essential. Empirically it can be observed that people who use common pool resources are from the same community and know each other, easing the flow of information. This can provide a base to set institutions that are self-organised and self-governing to monitor the activities of individuals using CPR’s and provide dispute redressal. These new institutional approaches are not a panacea but provide an alternative approach to solving our problem.
So what are these Self-Organized and Self-Governing institution, well as the name suggests there is no direct government involvement when it comes to the establishment of such institutions. They are born from the need for regulation and mutual understanding to enhance the sustainability of resource under question. The idea of self-governing is that institutions enact their own set of rules that are formulated with majoritarian consensus which everyone using the resource needs to follow. You can think of this like a cooperative society of individuals who have vested interest in preserving the resource.
How does this solve the initial problem of resource abuse and how can we prevent freeriding? It is in the best interest of individuals to follow the rules of the community as failing to do so might serious hamper and individual’s ability to use the resource. Such institutions also reduce the monitoring problem as people using CPR’s are from the same community-making information of resource abuse by a single individual easy to notice making freeriding virtually impossible.
Now this does not mean that such institutions can solve all CPR related issue, there have been empirical studies where such institutions have failed but in such a scenario we should focus on creating the right incentive structure for such institutions to flourish.
Water Pollution and Tragedy of Commons
Now that we understand the theory behind the structure through which we are looking to solve the problem let’s go ahead and talk about the specifics in part 2