The Tragicomedy of the Commons: First-Best, Second-Best, and Least-Best Ways to Avoid Overusing Shared Resources

Abstract

"Open access to shared resources can lead to a least-best equilibrium with overusage and perhaps, destruction of the resource. A first-best solution establishes property rights with a price set to insure an efficient level of usage, and usage by those who place the highest value on using the resource. A second-best solution is to establish some form of property rights, but restrict resale of these rights in some way. In this "tragicomedy" of the commons, wealth is not maximized because the commons is not used by those with the highest valuation. In this paper I examine the redistributive impact of various systems of property rights. Focusing on these distributional consequences allows me to identify the dominant solution to the problem of the commons: 1. The community of users agree on a total level of usage that is less than the level of usage in the free-entry equilibrium; 2. Each individual in the community of users is assigned a proportion of the total; 3. Assignment of access rights are given to individual users in proportion to their level of usage in the free-entry equilibrium or in proportion to an observable characteristic correlated with demand such as land ownership; 4. Rights to resell property rights may be restricted. Resale may be restricted to members of the community of users, or there may be no resale allowed at all.

"The redistributive consequences of restricting the commons allows me to predict when and how diverse types of commons have been regulated over time and place. The empirical evidence I examine on grazing, water supplies, hunting, fishing, and road use, is consistent with the conditions identified by the analysis."