Common resources like air, water and public roads are freely available to everyone. One person’s use of the common resource reduces other people’s ability to use it. The common resources gives rise to a new problem called as Tragedy of the Commons.
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently, and solely and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone’s long-term best interests.
A Parable to understand this concept
In the book Principles of Economics – Gregory Mankiw tells a parable to explain this concept.
Consider life in a small medieval town. Of the many economic activities that take place in the town, one of the most important is raising sheep. Many of the town’s families own flocks of sheep and support themselves by selling the sheep’s wool, which is used to make clothing.
As our story begins, the sheep spend much of their time grazing on the land surrounding the town, called the Town Common. No family owns the land. Instead, the town residents own the land collectively, and all the residents are allowed to graze their sheep on it. Collective ownership works well because land is plentiful. As long as everyone can get all the good grazing land they want, the Town Common is not a rival good, and allowing residents’ sheep to graze for free causes no problems. Everyone in town is happy.
As the years pass, the population of the town grows, and so does the number of sheep grazing on the Town Common. With a growing number of sheep and a fixed amount of land, the land starts to lose its ability to replenish itself. Eventually, the land is grazed so heavily that it becomes barren. With no grass left on the Town Common, raising sheep is impossible, and the town’s once prosperous wool industry disappears. Many families lose their source of livelihood.
In the short term each villager got benefited by allowing more of their own sheep to graze. But in the long run it became an issue for everyone. In the book Predictably Irrational – Dan Ariely writes
When we use a common resource at a rate that is slower than the rate at which it replenishes, all is well. However, if a few individuals get greedy and use more than its share, the system of consumption becomes unsustainable, and in the long term, everybody loses. In essence, the tragedy of the commons is about two competing human interests. On one hand, an individual should care about the sustainability of shared resources in the long term because everyone, including the individual, benefits from it. At the same time, in the short term the individual, benefits immediately from taking more than his or her fair share.
How to fix this problem?
The government can solve this issue in two ways.
- Reduce the usage of common resource through regulation or taxes.
- Turn the common resource into a private good.
How did Singapore solve the traffic problem
Singapore is the third most densely populated country in the world. It has 5.3 million people with the 274.1 square miles of land area. The population density is 19,536 per square mile. Roads are the common resource and it is limited. If everyone use their cars then it will result in traffic congestion and became a tragedy of the commons. What did the government do? They did the following.
- Getting a driving license is very expensive. You need to bid for it and sometimes it is as expensive as the car that one is purchasing.
- Singapore uses Pay-as-you-Go model. Tolls are collected automatically under a plan called Electronic Road Pricing (ERP). If you drive during the peak traffic hours then you will pay more money.
The goal of the government is to discourage driving by making people pay more for driving. If the incentives are setup correctly then people will behave accordingly. What did the people do? They started using public transportation for their commute and this in turn helped to resolve the tragedy of the commons.
Greek philosopher Aristotle said
What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.