Theory of the “Commons”

1. Theory of the “Commons” Discussing 3 classic papers on Common Property Resources, Public Goods , Easy Riders Richard Cornes and Todd Sandler. On Commons and Tragedies The American Economic Review, 73(4):787 – 92, September 1983. Richard Cornes and Todd Sandler Easy Riders, Joint Production and Public Goods The Economic Journal, 94: 580-98, September 1984. H. Scott Gordon Economic Theory of a Common-Property Resource: The Fishery The Journal of Political Economy, 62 (2):124-142, April 1954.

2. H. Scott Gordon: Economic Theory of a Common-Property Resource - The Fishery • Overexploitation of natural resources happens because of the absense of economic rent • Renewable (fish, forest) vs non-renewable (oil) resources

3. Cornes & Sandler: On Commons and Tragedies • Market failures are often tragedies of the commons • AP() = rental rate ≠ MP() • Normally environmental exploitation follows Nash Eqm • Nash & Pareto Equlibria are contrasted • This paper uses: • non-Nash behavior (non-zero conjectures) • Technology functions use (fish, fishing grounds, fishing vessels) • Degree of exploitation depends on conjecture and technology

4. Cornes & Sandler: Easy Riders, Joint Production & Public Goods • Standard propositions about public goods • Suboptimality increases with size • Stability of N Eqm depends on the sign on the income effect • Nash behavior is always inefficient for public goods • Identical individuals provide symmetric eqm • Paper states that these propositions break down for goods with private & public features.

5. Nash Equlibrium When the second agent’s reaction generates the same action from the initial agent that stimulated the reaction. In a 2 person non-cooperative game, this would be the intersect of optimal strategies of both parties. Eg. 2 agents supplying bottled water from a free well would end up servicing 1/3 each.

6. Pareto Equilibrium Resource A PPF showing Pareto Eqm Any changes would make someone worse off Resource B