Economic Perspective and Legal Perspective Plus the Tragedy of the Commons

1. Economic Perspective andLegal PerspectivePlus the Tragedy of the Commons

2. Set up for today’s class • Hand in your paper • We will play the Tragedy of the Commons • You will write for 15 minutes on how your understanding of Tragedy of the Commons has improved since start of class

3. Economic Perspective • Problem: prices are wrong; Private benefits/costs ≠ social benefits/costs • Solution: get prices right / modify incentives • Holds considerable sway even if you don’t agree with it • Natural resources usually don’t have a price • When they do, price may not reflect total value to society • For example, mining rights to land do not reflect total value of land including views destroyed, etc. and same for timber harvest rights • Pollution costs are not included in price of using pollutant (e.g., gasoline)

4. Externalities • Effects of producing/consuming something that are felt by people not involved in the market transaction • Transaction imposes costs on people who can’t decide not to engage in transaction • Solution: “internalize” costs • This causes those who ARE involved in transaction to take those social costs into account

5. Tragedy of the CommonsIntroduction • Characteristics • Open access • Disincentives for self-restraint • Demand exceeds carrying capacity • Users’ interests harmed by overuse • All actors capable of engaging in use • Rules don’t eliminate incentives to cheat

6. Simulating theTragedy of the Commons • To start the game: http://tiny.cc/ps477 • Management page (for Ron)

7. Tragedy of the CommonsConclusions • Greed is NOT the cause of overuse: farmers are equally greedy when using private farm or the commons • Economic explanation of overuse: costs to individual of using the commons are less than benefits to individual but costs to society are greater than benefits to society • Legal explanation of overuse: property rights are defined as “open access” – anyone has the right to use it with no constraints on level of use

8. Writing Assignment • 15 minutes • Briefly describe how your understanding of the Tragedy of the Commons has improved from when you handed in your paper.

9. Legal Perspective • Problem = legal rights and obligations not distributed properly; not restraining access leads to overuse • Solution = new laws and restrain use. Assumes that int’l law absent or badly formulated but good ones can be created • Liability and compensation • Regulation • Enforcement