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Market failures with common resources
In the POW market, each prisoner is given an identical parcel of food, and that parcel is their personal property. Suppose a different system is used, where all the parcels are left in one big pile and each prisoners is allowed to take as much as they desire, but are encouraged to only take what they need, lest they run out of parcels before more parcels are issued.
They might be prudent and take only the food they need, but if John sees other people taking more than they need, he might do likewise in fear that all the parcels will be gone. This is an example where the food parcels are common property, and there are some settings where markets may perform poorly.
buffalo
A Tibetan Harvest
The Chinese have always believed in the medicinal properties of rare items from nature, like Charlie Sheen's Tiger Blood and ground Rhino blood. Another highly-valued oriental medicine is yartsa gunbu which means "summer grass, winter worm" in Tibetan. Yartsa is a strange item, and very rare. It is a fungal colony within a larve carcas. A ghost moth first lays eggs on the ground, which hatch into larvae which burrows itself under the ground. Some of these larvae become infected by a fungus called Ophiocordyceps sinensis. This fungus is a parasite, and consumes the larvae while leaving the skeleton intact, and the while pushing the larvae carcass towards the surface. Once the surface is reached the fungus acts as a single organism, growing a stroma which sticks out of the ground only a quarter of an inch. From this stroma this fungus will produce spores to be carried away by the wind, ensuring future generations of Ophiocordyceps sinensis.
It are these stromata the Tibetans seek, but they are rare, and highly valued.
Figure 1—Tibetans Gathering Yartsa common resources, tibetan gold 1.jpg)
The Chinese use yartsa to mitigate backpain, impotence, jaundice, poor eyesight, tuberculosis, asthma, bronchitis, hepatitis, anemia, emphysema, AIDS, hair loss, and even cancer. It is also a status symbol, where a wealthy Chinese might flaunt his wealth by providing yartsa at dinner parties. One way of consuming it is to soak it in water and then make a tea from the water and eat the yartsa. This high value placed on a rare item suggests its price is high, and that is indeed the case. One pound of yartsa might be sold at the retail level for $50,000!(M1)
Figure 2—A Close-Up View of Yartsa common resources, tibetan gold 2.jpg)
The yartsa boom has brought considerable wealth to many Tibetan villages, and some rely on it as their largest source of income. There is a social element to the yartsa industry though, in that much of the land where yartsa is gathered is publicly held, making the harvest of yartsa resemble the buffalo hunts by Western U.S. settlers, groundwater extraction in the U.S. Midwest, and fishing in international waters. Yartsa is not a private good like computers or houses, but a common resource.
Yartsa: a common resource
Remember that China rules Tibet, and the property rights China has bestowed upon some of its citizens has not yet reached Tibet. Much of the land where yartsa is gathered is public land, and while some land is leased there is no guarantee it will be leased to the same person in future years. Moreover, if yartsa is to continue to grow some of the stromata must be unpicked, giving the fungus time to spread its spores. If all the yartsa are picked soon after emerging from the ground, there will be no more yartsa in future years.
Likewise, once all the groundwater from the U.S. aquifers are extracted there will be almost no more in future years. Once all the oil and natural gas is extraced, it is permanently depleted. Once all the buffalo, rhinoceres, and elephants are killed, they are extinct.
The problem is that while Tibetan villages as a whole have ample incentive to leave some stromata unpicked, this incentive is absent for any individual Tibetan. Yartsa is a common resources, which means that if someone leaves a stromata unpicked to reproduce in future years, anyone else can come right behind them and pick it. Moreover, if one person leaves a stromata unpicked they personally forego a considerable sum of money, but the benefits from future harvests must be shared with the whole village, because there is no telling who will get to pick the offspring of the unpicked stromata. For this reason, too many stromata are being harvested, and Tibetan villages are worrying about low harvests in future years. They must work together, as a community, to ensure a sustainable harvest, but such cooperation can sometimes be difficult when people are so poor and the yartsa are so valuable.
Definition
Common Resource—A resource which is shared by a community, and is not the property of a single entity. Examples include groundwater, fish in international waters, public grazing areas or "commons", clean air.
Free-Rider—One who benefits from the costs borne by other individuals. Examples include those who litter, expecting other people to clean-up; people who harvest too much fish, leaving a lower harvest for future fisherman, and people who pollute the air without paying to clean it.
Likewise, if an nineteenth century buffalo hunter who decides not to kill a female buffalo does so to ensure there will be buffalo to hunt in future years, but it is likely that someone else will benefit from the hide of future buffalo. Or, someone might kill that female buffalo the next day. Again, America as a whole had ample incentives to leave some buffalo unkilled so they could breed, but this incentive was not present for the individual hunter. He pays the cost of a foregone buffalo hide, but the benefits go to strangers.
The Ogallala Aquifer: a common resource
The Ogallala Aquifer is a major source of irriation in the Midwest, feeding almost one-fifth of grain, cotton, and cattle production and various industries, like meatpacking plants. It is a nonrenewable resource, as it was formed around ten million years ago from sources that no longer exist. There is some recharge from rain and snow, but these amounts are minimal. If each farmer in Kansas is allowed to pump however much water she can reach beneath her land, each farmer will probably extract however much water makes them the most money, giving little consideration to future generations who may need the water. It isn't that the farmers are selfish, but because they are rational. If they reduce their water extraction they pay the cost of lower prices, but the benefits are bestowed to future generations perhaps hundreds of years from now. Yet, as a society, we feel some obligation to future generations, and so state governments have worked together to regulate water extraction in a responsible manner. Still, parts of the aquifer are expected to be depleted in as little as 50 or as many as 200 years (W1),(B1)
Figure 3—Aquifers Across America (the Ogallala in blue
from the Texas Panhandle to Nebraska) aquifers.jpg)
Is this "responsible extraction?" Hard to say. On the one hand, we want to use the water eventually, as it is pointless in letting a valuable resource go unused. Yet if we extract water at the rate it is recharged there will be very little benefits. We want our children to have access to the water, but what about twenty generations from now? Do we want to deny our children cheaper food so that people twenty generations from now will have cheaper food? These questions are difficult to answer, but we know that anything resembling responsible extraction will only occur if society decides together as a group.
The Tragedy of the Commons
If we do not temper our extraction of the Ogallala aquifer we may find that we extract all the water in just a few decades, leaving much of the Midwest U.S. without enough water to farm. This would be an example of the Tragedy of the Commons, where people cannot reduce the temptation to free-ride at the expense of future generations, and society is unable to temper extraction of water. No one person has the incentive to conservative the water, because the benefits of conservation are bestowed to other people, perhaps far into the future. People follow what is in their individual self-interest while knowing it is not in society's interest, and even if one farmer feels guilty from the large amounts of water she extracts, she knows that if she does not use the water soon some other farmer will. The aquifer will depleted shortly regardless of what she does, so why wouldn't she partake in the benefits also?
Video ?—The Tragedy of the Commons
(must use Internet Explorer)
Society's sometimes use social norms or government regulation to prevent the Tragedy of the Commons, but there have been documented cases when a resource is completely exhausted in a short period of time. Soil erosion in ancient Greece is an example. Around the beginning of the Neolithic Revolution human settlers from Asia Minor brought agriculture to modern-day Greece. The soil and climate was favorable, and so they plowed and tilled with no concern over how rainfall and win would erode the soil slowly over time. The topsoil was indeed a common resource, and while their agricultural methods provided high yields in ancient times the soil erosion steadily reduced the ability of future Greeks to raise crops.
Figure ???—Ancient Greek Agriculture
Greece was not always the rocky region we know today. It was verdant, full of vegetative life. Yet their propensity to free-ride eventually stripped most of the topsoil, such that during the Hellenistic and Roman period famine was a horror experience by most Greeks at least once in their lives. They should have recognized what they were doing to the land, and developed governmental rules and social norms for how land was farmed to prevent Greece from becoming the barren, rocky land it is today.(S1)
Video 1—The Simpsons Illustrate The Tragedy Of The Commons
(must use Internet Explorer)
Solution 2: Make binding community decisions in small groups (the case of American bison versus the Porcupine Caribou)
Small communities have little trouble managing the resource, because people can observe how their actions affect the community, and the community is able to develop moral and religious codes for discouraging bad behavior. Take the Alaskan Natives located around Old Crow, Yukon (near Alaska). Formally called the Gwich'in Nation, for as long as they remember they dependend on the Porcupine Caribou for much of their food. This is a common resource, for the more caribou they kill in any one year the less caribou that will be able to breed and produce offspring for future years. Yet if any person decides not to kill a female caribou, it may be someone else who benefits from the offspring the caribou produces. This is the same problem American settlers faced with bison. Before European settlers as many as 30 million bison resided in the U.S. Great Plains. Valued mainly for their hides, hunters would kill as many buffalo as possible, caring little whether they killed females or males. They did not care about how their hunts affected the size of future buffalo herds because that was someone else's problem. It only took three years to exterminate the southern herds, and by 1900 there were less than a thousand bison left.(Y1)The Gwich'in people do not have this resource problem though. Their social solidarity meant there was no such thing as "someone else's problem." They hunted together and made decisions together. On the hunts they would only kill the older bulls at the back of the herd who were not needed for breeding. The young bulls and cows were left unharmed so that they could breed and provide the same amount of meat, bone, and fur each year. The Gwich'in knew their fate and the caribou's fate was intertwined, and this responsible stewardship was wrought into their culture. If any one person tried to take a little more for himself at the expense of others, he would be seen and would be condemmned by the community. In fact, the caribou was considered sacred, and so violating their social norms about caribou hunting was like an insult to the universe.(B2)
Humans have an ability to believe any religious notion, and will worship Zeus or a tree. Communities often harnass this penchant for superstituion, and use it to enforce responsible behavior. When people remark how environmentalism has become something of a religion, this is hardly an unique insight, as human societies have always used religion to dictate social and economic behaviors.
Prudent use of common resources can be established without appealing to the coercive power of a large, centralized government. In some cases it is much better if small communities form their own responses to resource scarcity. This can only happen if the communities are small, however. Now that Anglo-Saxon's have entered the Yukon to hunt caribou and drill for oil, the Gwich'in Nation's social code does not provide sufficient protection for the caribou. The Nation now work with the Canadian government to protect the herds through the Porcupine Caribou Management Board (PCMB), an regulatory assembly of Native tribes and Canadian governments.
Figure ???—Picture from the PCMB Website common resources gwichin 2.gif)
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They would live in a tent atop the packed ice, with a spruce-bough floor and a wood-burning stove to keep them warm, and her mother would keep watch for the caribou from a hole in the tent door. "Sometimes she'd go outside and she'd ask the ravens, 'Where are the caribou?'" recalls Kassi. "I'd watch her and I'd watch her face. And I'd know when the caribou were coming close." Kassi's grandfater and the other hunters would travel to the back of the herd to hunt the older bulls, leaving alone the pregnant cows at the front. When the hunters returned to camp, sometimes three or four days later, the Gwinch'in would feast, and they would watch, reverentially, as the caribou passed by on their way to the coastal plain. "It's a very sacred time, it's a quite time," says Kassi. "You have to give thanks to the caribou. And we give special thanks to the cows. We pray for them, especially the women, we can connect with them, we can feel what they feel as women and as mothers."
—Bakan, Joel. 2004. The Corporation. Page 43. Free Press: NY, NY. Kassi is a member of the Gwich'in Nation in the Yukon, very close to Canada.
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Many societies have social institutions which have evolved over hundreds of years to manage resources efficiently. In Indonesia there is a fish management system known as "Panglima Laot", where there are clearly defined rules for how fishing should be conducted, including rules on who can fish and how much they can harvest. These rules, over 400 years old are designed to provide ample food while also reducing social conflict. Researchers recently studied this system, and found the system to provide generous amounts of fish while also protecting the fish's habitat, and deemed it to be a model for more modern nations to copy.(W2)
Solution 3: The private sector to the rescue
The profit-motive can sometimes exploit a common resource, allowing one person to profit handsomely at the great expense to society at-large. There are many cases where the profit-motive has saved common resources though. Whenever an item becomes scarce, its price rises, encouraging others to take actions to produce more of the good to capture the high prices.
It is true that unrestrained greed for profits almost drove the American bison to extinction, but it is also true that when bison numbers became dangerously small, entrepreneurs stepped in to profit. They captured and bred bison, just like many people do today, and these private herds protected the buffalo until the federal government started protecting the animals in the 1890s. Without these entrepreneurs, by the time legislation paid the buffalo any attention, there may have been no buffalo left.
And the necessity of open access for the slaughter is proven by numerous private parties who found bu¤alo to be such a valuable resource that they established property rights on their own by capturing and then breeding live bu¤alo. Several entrepreneurial ranchers in the 1870s and 1880s established private herds that, until federal legislation arrived in the mid 1890s, probably saved the bu¤alo from extinction.
—Taylor, M. Scott. 2011. "Buffalo Hunt: International Trade and the Virtual Extinction of the North American Bison." American Economic Review. 101(7):3162-95.
Remember that the problem with a common resource is that no own its. Until the aforementioned entrepreneurs, bison were not owned by anyone, and as a result no one had any incentive to protect them. One obvious solution, then, is to assign ownership of the resource, which is what the entrepreneurs did when they enclosed the bison on their land. This is essentially what the Gwich'in did caribou, except that they behaved as if the caribou were owned by the community, and they managed the hunts as a community. Why not formally assign ownership of the resource to a person or small group, then, if the resource stock is falling to dangerously low levels.
As ReasonTV argues below, if people are over-fishing because no one owns the fish, why not let people own the fish and manage the fishing themselves?
ReasonTV: How to Save a Dying Ocean
In similar spirit, as African wildlife populations fall in response to dwindling habitats and hunting pressure, U.S. ranchers have relocated the animals to Texas, where the animals are privately owned and the cost of protecting the animals is covered by hunters who pay to kill the exotic animals. Because the ranchers would lose money in future years if all the animals are killed, they are careful to only kill certain animals unlikely to breed, and to make sure the animals are provided the right environment to breed and raise offspring successfully, as the following excerpt from 60 Minutes shows.
Video 3—Hunting Animals to Conserve Them
References
(B1) Buchanan, Rex C., Robert R. Buddemeier, and B. Brownie Wilson. "The High Plains Aquifer." Kansas Geological Survey. Public Information Circular (PIC 18). Accessed August 2, 2012 at http://www.kgs.ku.edu/Publications/pic18/index.html.
(B2) Bakan, Joel. 2004. The Corporation. Page 43. Free Press: NY, NY.
(M1) Michael Finkel. August, 2012. "Tibetan Gold." National Geographic magazine. Photographs in Figures 1 & 2 were by Michael Yamashita and accessed on August 2, 2012 at http://ngm.nationalgeographic.com/2012/08/tibetan-mushroom/yamashita-photography#/08-family-harvesting-worms-670.jpg.
(S1) Sojka, Gary A. 2009. "Lecturee Five: Agriculture Impacts Ecology and Geology." Understanding the Human Factor. The Teaching Company.
(W1) Water Encyclopedia. "Ogallala Aquifer." Accessed August 2, 2012 at http://www.waterencyclopedia.com/Oc-Po/Ogallala-Aquifer.html#b.
(W2) Wildlife Conservation Society. October 11, 2012. "Fisheries benefit from 400-year-old tradition." ScienceDaily. Accessed October 15, 2012 at http://www.sciencedaily.com/releases/2012/10/121011123711.htm.
(Y1) Yablonski, Brian. Fall 2007. Bisonomics. PERC Reports: Volume 25, No. 3.
