Partha Dasgupta: 'The Economics of the Environment'
Copyright © The British Academy, 1996
Printed in Proceedings of the British Academy, Volume 90, pp. 165-221
5. Markets and their Failure: Reciprocal Interactions and the Problem of the Commons
Matters can be quite different for interactions that are reciprocal. Here, each party's actions affect all. Interactions of this sort are the hallmark of common-property resources, such as grazing lands, forests, fisheries, the atmosphere, aquifers, village tanks, ponds, lakes, and the oceans. They are often common property because private property rights are for a number of reasons difficult to define (e.g. in the case of mobile resources, such as air). Even when definable, they are on occasion difficult to enforce (e.g. in the case of forest products in mountainous terrains). However, unlike public goods, consumption of common property resources is rivalrous: it is possible for at least one party to increase its consumption at the expense of others' consumption of them. Resources such as local forests, grazing lands, village ponds, and rivulets, are often common property because that is how they have been since time immemorial. Moreover, in poor countries they have remained common property for long because they are basic needs and are at the same time geographically contained. Rivers may be long, but they don't flow through everyone's land. In any case, upstream farmers would have untold advantages over downstream ones if they were in a position to turn off the "tap". Exclusive private territoriality over them would leave non-owners at the mercy of the owners at the "bargaining table". [note 12 (go to Notes)] Society typically don't risk the institution of private-property rights over such resources. [note 13] However, since the private cost of using the resource falls short of its social cost, a common property is over- exploited, unless there is collective action at some level (Section 12). This was the point of a pioneering article by Gordon (1954). [note 14]
In a famous essay that popularised Gordon's analysis, the biologist, Garrett Hardin wrote:
"Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons... As a rational being, each herdsman seeks to maximise his gain. Explicitly or implictly, more or less consciously, he asks, 'What is the utility to me of adding one more animal to my herd?'... Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked in a system that compels him to increase his herd without limit — in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the fredom of the commons. Freedom in the commons brings ruin to all." (Hardin, 1968, p. 1244.)
The metaphor appears compelling; it offers an example of the famous "prisoners' dilemma" game in a striking way (Section 12). But is it trustworthy?
The answer depends on how contained the commons happen to be geographically. Hardin's parable is apt for resources such as the atmosphere, the open seas, and urban pollution; but, as we will see in the next section, it is misleading for geographically-localised common-property resources, such as ponds, threshing grounds and, ironically, grazing fields.
Economic analysis is thought by some to have implied that common-property resources can be managed only through centralised coordination and control, where by a "centralised agency" is meant the government, or some agency external to the community of users. Referring to solutions to the problem of the commons in the theoretical literature, Wade (1987, p. 220) writes: "The prevailing answer runs as follows: when people are in a situation where they could mutually benefit if all of them restrained their use of a common-pool resource, they will not do so unless an external agency enforces a suitable rule." And he proceeds to describe enforcement mechanisms in his sample of villages which do not rely on external agencies (Section 6).
Wades' is a bad reading of modern economic analysis. The theory of games has unravelled a number of institutional mechanisms (ranging from taxes to quantity controls) that can in principle support effective allocations of common-property resources. The theory makes clear, and has made clear for some time, that enforcement of the controlled allocation can in a variety of circumstances be undertaken by the users themselves (Dasgupta and Heal, 1979, Chapter 3). In many cases, such participatory arrangements of control may well be the most desirable option (see below). [note 15]
This said, the problem of the commons can rear its head through all sorts of unsuspected sources. The introduction of cotton as an export crop in Tanzania was successful in increasing farmers' incomes. But other than cattle, there were few alternative forms of saving available to farmers. So the quantity of livestock increased significantly, placing communal grazing lands under stress — to the extent that herds declined because of an increase in their mortality rate.
As would be expected, monitoring, enforcement, information, and transaction costs play a critical role in the relative efficacy of the various mechanisms that can in principle be used for controlling the exploitation of common-property resources. It was noted earlier that it matters whether the common property is geographically contained (contrast a village pond with the open seas); it matters whether the users know one another (contrast a village grazing ground with a tuna fishery; Section 12); and it matters whether individual use can easily be monitored, so as to prevent "free-riding" (contrast the use of a village tube-well with the littering of streets in a metropolis; or the grazing of cattle in the village commons with firewood collection from forests in mountainous terrain; Section 12). The confirmation of theory by current evidence on the fate of different categories of common-property resources has been one of the most pleasing features of modern economic analysis.
Public concerns about environmental degradation are often prompted by disasters, such as nuclear leakage or floods. The environmental impact of large undertakings (e.g. dams and irrigation systems, such as the Narmada Project in India) also catch the public eye. This is not surprising. Large-scale effects caused by single happenings are, often enough, easy to detect. So they invite debate. In contrast, environmental interactions that result in an overuse of common-property resources are not so easy to detect, at least, not unless some threshold is reached and catastrophies occur. The commons often involve large numbers of users, each inflicting only a tiny damage on each of the others, which, however, sum to a substantial amount; usually, over an extended period of time. There is now evidence that environmental degradation in poor countries is in large measure caused by those institutional failures whose deletarious effects accumulate slowly over time; it is caused less by large public projects (Repetto, 1988).
More: 6, Public Failure and the Erosion of Local Commons
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