Wednesday, December 15, 2010

Property rights and the tragedy of the commons

The tragedy of the commons is a well studied and understood problem. When property is shared, the owners tend to abuse it because individual actions and only a small individual impact. Typical examples are overfishing, air and water pollution, and the need for the government to tax to provide public goods. The typical solution is to assign exclusive property rights to the shared good. Do this always work to solve the tragedy of the commons?

No, say Preston McAfee and Alan Miller. The problem is that the exclusive property rights lead to underutilization of the good. This was the purpose of the property rights in the first place, but McAfee and Miller argue that this often goes too far. First, if a good become unavailable, there is a waste of resource trying to find other ways to consume. Second, there could be underutilization if social benefit differs from the private benefits of the owner. The problem is not trivial, for example think about the attribution of radio, phone or wifi frequencies that lead to significant underuse of some frequencies others would love to use. The solution? A part from just abandoning property rights (in the right situations), it is not clear to me what could be done.

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