Tragedy of The Commons: Will We Run Out of Fish?

An interesting problem found in public finance is called the tragedy of the commons, which states that resources (land, housing, clean air) will be overused in terms of economic efficiency. One of the first to introduce the idea was Garrett Hardin in his 1968 article “The Tragedy of the Commons”. As you may remember from our discussion on externalities, when someone or something does not bear the full cost of their actions, there will be too much of that action with too much defined as more than the socially optimal level. The tragedy of the commons is a natural extension of this idea.

Russian Cod Trawler

Let us take a common-pool resource. A classic example is the Grand Banks, an extensive area of shoals in the western Atlantic Ocean off southeast Newfoundland, Canada. The mingling of the cold Labrador Current and the warmer Gulf Stream and the shallowness of the water make the area a major source of fish. A feature of the Grand Banks is that it is very large and there are no fences (it’s the ocean). What this means is that for all practical purposes, the Grand Banks exhibit a feature that defines a common-pool resource: nobody owns it, and nobody can profitably own it (the reasons could be practical as in the Grand Banks, or, perhaps, cultural, like common property among many Native American tribes). When this is true, an interesting thing happens.

Before we get there, however, let’s look at a private good (as opposed to a public good like the Grand Banks). Let’s say I own a private fishery. I grow fish in order to sell them. If I sell the fish, I get the market price for those fish. This is the benefit of selling the fish. Selling the fish also has a cost: I have to grow them, feed them, care for them, catch them, etc. I also can’t use them for something else, say my own consumption if I sell them. As with everything in economics, I sell the fish until the value to me of the last fish exactly matches the cost to me of the last fish. If there were still value to be had, I’d sell more fish. If it’s costing me more to catch them and sell them that I am getting in return, I stop. Notice in the case of a private fishery, the answer is always about me’my benefits and my costs.

Let us now return to the Grand Banks. What happens when I catch a bunch of fish? Naturally, I sell them. What do I get for them? I get the market price just like in the private fisheries example. What does it cost me? The effort of catching them, the effort of marketing myself, the opportunity cost of not eating them myself, and the like just like in the private example. Furthermore, just like in the private example, I will fish until it is no longer profitable for me to catch another fish. When I do this, however, I reduce the number of fish that can be caught by the other fishermen ever so slightly. This externality, my actions reduce the welfare of the other fishermen, does not enter my marginal benefit = marginal cost calculation. The result is that I fish, ever so slightly, more than the socially optimal level because I do not consider the marginal loss to the other fishermen. The problem is neither do you, nor do any of the other fishermen out there. The sum of our over fishing will eventually deplete the Grand Banks, or any other common-pool resource. In fact, the New York Times recently reported that fisherman are, in fact, depleting the Grand Banks by taking almost twice the sustainable level of fish each year.

How do we solve such a problem? As you may have guessed, the most common solutions either involve taxation (called effluent or user fees) or the assignment of property rights to someone. Property rights solve the problem because once the over fishing affects an owner of the resource, they will charge a price that internalized the fishing externality. Taxes do a similar thing, the increase the price of fishing so that the marginal benefit equals the marginal social cost, as opposed to only the marginal private cost.