May 25, 2003

The fallacy of the commons

Via Jim Capozzola, this choice piece by David Frum, claiming that the solution to overfishing is to award long term leases on individual fish species to private industry. Frum apparently got a barrage of emails telling him that his proposal was economic nonsense - his reaction was to stick to his guns, saying that

We have to figure out a way to make wild species somebody’s property – and if my scheme of long-term leases is faulty, it is at least a pointer to the right answer.

As Jim sez, this is chuzpah at its finest; it’s also based on assumptions that are quite problematic. Frum’s basic idea - that the only solution to overfishing is to create private property rights, rests on Garret Hardin’s the “Tragedy of the Commons.” Hardin’s argument is that commons tend by their nature to be overused - everyone with access to the commons is going to try to maximize their individual short term advantage, regardless of what that does for the common resource as a whole. It’s what game theorists call a “Prisoner’s Dilemma.” Actors have no incentive to preserve the resource in the long term, because it’s not their individual property - instead, they grab as much as they can get. Thus, fishing fleets tend to overfish, even if that results in the long term depletion of fish stocks - because each fishing fleet wants to grab as much as it can, while the going is still good. Traditionally, two possible solutions have been proposed to the Tragedy of the Commons. The first is centralized government rules of the sort that Frum abhors instinctively. The second is to privatize the resource. If it becomes the property of one actor, then that actor has an incentive to maintain it in the long run rather than seeking to maximise her short term gain.

So much for the conventional wisdom. The Tragedy of the Commons is a nice story and describes real problems. But economic theory has demonstrably underestimated the ability of communities to solve these problems. Lin Ostrom, at the University of Indiana, has a wonderful book, Governing the Commons that shows how conventional wisdom can sometimes turn out to be plain wrong. Ostrom has coordinated a major, decades-long research project that has examined literally thousands of situations involving commons-type resources. She’s come to the counter-intuitive conclusion that local communities can in fact do rather well in managing these resources, as long as they’re allowed to (this paper sets out some of her basic findings).

Ostrom argues, on the basis of voluminous amounts of empirical evidence, that problems such as overfishing aren’t solved by privatization or centralization. Instead, they’re best addressed by “polycentric” governance systems, in which central authorities provide broad enforcement, but let local communities set their own rules as much as possible. For example, problems of overfishing of lobsters along the Maine coast have been solved by local “gangs” of lobster fishermen that informally regulate certain parts of the coast, working in conjunction with the state government. This approach allows local users to use their specific knowledge to maintain resources while excluding free riders. As Ostrom suggests, something like this approach seems to be the best bet for managing resources on a wider scale. It’s less applicable to some species than to others - pelagic fish present a problem because of their long migration routes. But it appears to have a track record of actually working - something that can’t be said either for Frum’s proposal of privatizing everything, or for the politicized quota systems that governments currently rely on.

Posted by Henry at May 25, 2003 08:27 PM | TrackBack
Comments

What about “The Demographic Transition PartII” for the dark side of the tragedy of the commons. No overfishin here, far from it.

Posted by: Edward Hugh at May 26, 2003 06:30 AM

Henry, do you really think looser regulation or control would make fishers act more responsibly? I’ll take your example I put forward you the entire history of fishing (and whaling), from the stone age to now.

Edward, please elaborate.

Posted by: David Weman at May 26, 2003 01:13 PM

You are right about Ostrom, but her analysis applies generally at the level of local communities, and typicly involves the reestablishment of traditional communal resource management practices in developing countries. It’s applicability in large-scale situations, like the EU’s Common Fisheries Policy is questionable, especially when large scale fishing fleets become involved. This is where Martin Weitzman and his comparison of quotas vs. price signals come in.

In Ronald McKinnon’s book Reinventing the Bazaar, he describes New Zealand’s implementation of property rights in fishing within its Exclusive Economic Zone, which involve the sale of tradable permits to fish. The regime is not cheap—New Zealand spends a lot on enforcement, to make sure that fisherman do not exceed their fishing limits, but it is one possible answer. He also points out that the Federated States of Micronesia, a pacific archipelago with 200 square miles of land but an 8,000 square mile EEZ, has contracted out fishing rights to one company, Ocean Farming Inc.

McKinnon’s not dogmatic (one reason why his book is good), and he mentions Ostrom as well, as he talks about different solutions to common property resource problems. The main point to be drawn from this is that there need not be a universal solution, and the solution may vary depending on the local context.

Posted by: Damien Smith at May 26, 2003 07:33 PM

“We have to figure out a way to make wild species somebody?s property. . . “

I’m (almost) speechless. While I understand his argument in the abstract, this is one of the most appalling notions I’ve encountered in a long time. Consider the ecocidal possibilities of corporate downsizing. If entire wild species became chattel, they would be expected to be profitable and probably elimiinated if they weren’t.

This is another example of the deadly meme run X like a business. Heaven preserve us from the inappropriately businesslike.

Posted by: Kathryn Cramer at May 27, 2003 10:24 AM

Damien - Lin Ostrom has two basic ideas that she’s been plugging away at for years. The first is the one that everyone knows - her work on common pool resources and local communities. The second is her work on polycentric governance - much done together with her husband Vincent - which is much less well known. The latter concept extends to a much wider set of cases than the former - and in recent work, such as the essay that I point to, she has increasingly started to use her “famous” work as a segueway into the much broader themes that she is really interested in. Thus, while I think you’re right that her work on local communities is only applicable to some species (i.e. those like lobsters that don’t move a lot), her broader approach covers a much wider variety of governance forms beneath the state, and indeed across state boundaries, including perhaps some of the cases you talk about (I haven’t read the book in question - sounds really interesting).

Kathryn - couldn’t agree more. It reminds me of the Gene Wolfe story (at least I think it’s Gene Wolfe), in which a guy owns the last nature reserve with wild creatures on the planet, but can’t raise enough funds to keep it going. He then sells out - auctions the animals off to people who want to hunt them down - and makes a small fortune. Which illustrates well the basic point that economic value and “value” aren’t always the same thing.

I also think that this idea of propertization of species is symptomatic of something bigger - extending to questions of genetic engineering, Roundup Ready pesticides, copyright law extension etc. Property rights are increasingly being used as technologies of control - sometimes in good ways, sometime in very bad ways, but without very much in the way of real public debate. Although the people at Creative Commons are beginning to do some rabblerousing …

Posted by: Henry at May 27, 2003 11:30 AM

Very interesting post and informed responses. I’ll have to read up on Ostrom.

K. Cramer responds that “If entire wild species became chattel, they would be expected to be profitable and probably eliminated if they weren’t.”

Why would a profit maximizing company expend valuable resources to exterminate a species that is worthless to them? If cash flow were negative, a company might try to sell it to some other business organization that can manage the species at lower cost and make a profit (or perhaps does not want to make a profit), or they might just leave the species alone. I cannot imagine greedy capitalists destroying property recklessly—even when it is worthless to them.

That being said, economists recognize that the lowest cost solution to maintaining a commons may not be property rights allocations, but instead self-interested persons agreeing to collective patrol and governance.

Posted by: Kevin Brancato at May 27, 2003 12:30 PM

Geez, Brancato, you do know that capitalists have destroyed property because it was worthless to them, don’t you? E.g., because it might have made a profit for a smarter competitor or made a customer harder to keep.

Brad De Long has an extensive quote from a quote from The Grapes of Wrath:
Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putresence drip down into the earth.

I can add from experience that some people are moved to destroy things they haven’t profited from just because they’re embarassed and want to hide the evidence.

Posted by: clew at May 28, 2003 01:01 AM

I was referring to the actions of organizations that would, in reality—not in literature—, have the resources to purchase property rights in fish species.

Again, if one organization could not make a profit from a set of property rightsm but a competitor could, why not sell the rights to the competitor and make a profit? That is what makes a property rights regime economically efficient—the rights go to the higher values users.

Would embarrassment at failure cause destruction? Sure, that’s possible—in both a regime of property rights and in collective governance.

But we’re not talking about burning food for other purposes (keeping warm can be justified), or even destroying food already in one’s hands, we’re talking about expending large amounts of resources on first finding all of a species before being able to make it extinct.

Besides the difficulty of doing this without violating some other species owner’s property rights (who will try to stop the rabid exterminator), it would simply not be within species property rights to extinguish the entire population, as I presume these rights would be suspended if the population falls below a certain threshold.

You write, “I can add from experience that some people are moved to destroy things they haven’t profited from just because they’re embarassed and want to hide the evidence.” I agree it’s possible—when the cost of destruction is low, but the cost of extinction is very high under a regime of property rights.

Posted by: Kevin Brancato at May 28, 2003 07:40 AM

“It reminds me of the Gene Wolfe story (at least I think it’s Gene Wolfe), in which a guy owns the last nature reserve with wild creatures on the planet, but can’t raise enough funds to keep it going. He then sells out - auctions the animals off to people who want to hunt them down - and makes a small fortune. Which illustrates well the basic point that economic value and “value” aren’t always the same thing.”

It is indeed a Gene Wolfe story. I can’t remeber the title, but it it’s in the Book of Days (+ Castle of Days)

Posted by: David Weman at May 29, 2003 10:13 PM

IME, a company - people in a company - Alice! - is willing to destroy something because it could be profitable to Bob and Alice is reasonably afraid that she’s going to underestimate what Bob’s going to do with it. She considers that a risk because Bob is the only expert on it. As Bob is the only expert, there isn’t a real market in the price of whatever. Easier for Alice to control risk by slowing change than by trying to become an expert in a new field.

I don’t know that that’s so impractical on Alice’s part, either. Passé programmers aren’t always rehired if they help switch everything to a new language. Deep-sea fishers, in my modest acquaintance, have immense investments in specific equipment and knowledge. I expect that sometimes they would correctly choose to profit more by selling rights, but not always…

And, if rights in a species don’t include the right to send it extinct, we have all the apparatus of predicting and monitoring and enforcing still to do, but now the overfishers are sullen because they’ve put down hard cash and are thwarted anyway. Really sounds like an Ostrom problem to me.

Posted by: clew at May 30, 2003 09:40 PM

I enjoy your blog very much, but wasn’t quite satisfied with the above post. I responded here: http://stuartbuck.blogspot.com/#200367629

Posted by: Stuart Buck at May 31, 2003 12:04 PM

clew - you wrote: “Brancato, you do know that capitalists have destroyed property because it was worthless to them, don’t you? E.g., because it might have made a profit for a smarter competitor or made a customer harder to keep”

I’ll assume that you know, but have just forgotten, that some of the world’s worst environmental degradation results from government action and ownership of resources. U.S. military bases, the Iraqi marshes, the intentional flooding of the yangtze valley in China, and the entire soviet union are just a few examples. The private sector has a long way to go to even get close to the environmental harm caused by non-profit oriented governments.

Posted by: "Edward" at May 31, 2003 03:20 PM

“Edward”, what you are describing as public not profiting is in fact strict use of public goods to private benefit.

The US Army is rather a mercenary organization at the orders of private US businesses, as proven by the Iraq war (Bechtel anyone?).

The iraqui marshes were destroyed to the private benefit of Saddam Hussein.

In the SU a lot of damages were done by individuals to advance their private position in the nomenklatura.

China is a profit oriented corporation.

DSW

Posted by: Antoni Jaume at June 1, 2003 03:18 PM

Very nice blog

Posted by: Jason at October 21, 2003 06:55 AM
Post a comment









Remember personal info?