The tragedy of the commons

Update 5:00pm: I just noticed that ScienceInsider has a nice post on the Economics Nobels. Here's a very brief summary of how Ostrom found communities could get around the tragedy of the commons:

Ostrom found that individuals will cooperate if, among other things, they are able to participate in governance, monitor the compliance of others, and punish cheaters. "When people have trust that others are going to reciprocate, then there can be cooperation," she says. "When there is no trust, there is no cooperation unless people are facing the gun."

More than 40 years ago, Garrett Hardin described the tragedy of the commons.

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. . . . But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit--in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all. (emphasis added)

The conclusion seems inescapable. If each of us pursues our "own best interest in a society that believes in the freedom of the commons" our common heritage will be despoiled. I say "seems inescapable", because a lot of people have been trying to find a way out of the tragedy of the commons for a long time.1

Well, the the 2009 Nobel Prize in Economics was shared by Elinor Ostrom of Indiana University "for her analysis of economic governance, especially the commons."
From the press release about the prize:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.
Here's a video in which Dr. Ostrom describes how institutions can mitigate (if not completely eliminate) the tragedy.2

Henry Farrell argues that "One plausible characterization of her life's work is that it is about demonstrating the empirical weaknesses of a 'cute' economic model (the Tragedy of the Commons) that assumed a role in policy discussions far out of proportion to its actual explanatory power, and replacing it with a set of explanations that are nowhere near as neat, but are far more true to the real world."

I'll leave it to the economists to argue about how 'cute' versus 'realistic' the tragedy was, but I can't help but notice that Henry also points out where Ostrom has received more than a dozen grants for her work -- the very NSF program that Tom Coburn wants to abolish.

1See, for example, a special issue on the tragedy of the commons that was published in Science in 2003.
2Thanks to Tim Haab for the YouTube link.