Economics

Common-Pool Resources and

Public Goods
Dept. of Economics @ NCKU
Weng, Ming-Hung
Why were bisons almost extinct but
not cows?
 Goods are different
Excludability Rival in consumption
Ability to prevent Severity of externality to
others from others marginal benefit in
consuming consumption or marginal
cost in production when
more people access the
same goods.
Public Goods

Marketable goods
 Rivalry and Excludability *

Swimming pool is ___ in rivalry and ___ in

excludability
1. High, high
2. High, low
3. Low, high
4. Low, low
 Rivalry and Excludability *
Seeing the new-year sunrise in Erliao,
Zuojhen () is ___ in rivalry and ___
in excludability
1. High, high
2. High, low
3. Low, high
4. Low, low
 Rivalry and Excludability *
Street light is ___ in rivalry and ___ in
excludability
1. High, high
2. High, low
3. Low, high
4. Low, low
Common Pool Resources (CPR)

What are possible problems when we use

common pool resources, which are high in
rivalry and low in excludability?
 External costs on CPR

Too much is consumed from societys perspective

Consuming common pool resources(*)
Theres a school of 500 fish in the lake
surrounded by your community. Every morning,
your boat can catch (at most 10) fish to sell in
the market for $10 each. At night, the rest of fish
will reproduce by doubling its size. How many fish
will you take away from the pool every morning?
1. 0
2. 2
3. 5
4. 10
tragedy of the commons
Garrett Hardin (1968)
 Challenges on CPR
Externality
Sustainability
CPR are usually renewable resources, like
fishery, forest and are susceptible to
overuse, no longer sustainable. (tragedy of
the commons (Garrett Hardin))

sea urchin
black tuna
 Battling tragedy of the commons
Solutions to tragedy of the commons:
Government regulation (fishing limits (net size
(flying fish roe, 350 ton per year, season), etc.)
Tax on use
Community based solution (Common ownership)
(Elinor Ostrom (2009 Nobel))
Difficulties
Monitoring
Enforcement (earth)
Regulation on flying fish roe collecting

Using straw to mimic seaweed (Sargassum)

flying fish like to spawn
350 ton cap 2016
Sustainable rate
http://aws.thenewslens.com/post/161061/
Fishery cap in Bristol Bay, Alaska

Sockeye
Fishing Season salmon fishery
 Tourism management in Bhutan
Punakha Dzong

Tourists to Bhutan are committed to spend at least

$200 or 250 daily for their stay in this remote country.
 Traffic control*
A road between the suburbs and downtown is
congested at rush hour. If 100 people use the
road at rush hour, the trip takes 30 minutes. If the
101st person enters the road, everyone has to
slow down and the trip now takes 31 minutes.
People value their time at $0.10 per minute. For
simplicity, ignore all of the costs of using the road
other than the cost of time. The marginal social
cost of the 101st person
1. $3.1; 2. $6.1; 3. $10; 4. $13.1
 Traffic control *
If 100 people use the road at rush hour, the trip
takes 30 minutes. If the 101st person enters the
road, the trip now takes 31 minutes. People value
their time at $0.10 per minute. The governor of
this state would like to institute a toll that would
equal the costs the last (101st) driver imposes on
the other drivers. How high should the toll be on
this road during rush hour?
1. $3.1; 2. $6.1; 3. $10; 4. $13.1
Traffic control
Taiwan
Toll-free hours
High Occupancy Vehicle
World
Congestion charge
Permit
Road space rationing or
driving restriction
Congestion pricing in UK
 Consuming common pool resources(*)

Theres a school of 500 fish in the lake

surrounded by your community. Every morning,
your boat can catch (at most 10) fish to sell
in the market for $10 each. At night, the rest of
fish will reproduce by doubling its size. How
would the villagers in the community cope with
this possible tragedy of commons?
 Consuming common pool resources(*)
Theres a school of 500 fish in the lake surrounded
by your community. Every morning, your boat can
catch (at most 10) fish to sell in the market for
$10 each. At night, the rest of fish will reproduce
by doubling its size. If the community sets the cap
of 5 fish for each villager and will fine them $100
for breaking this rule, how many fish will you take
away from the pool every morning?
1. 0
2. 2
3. 5
4. 10
Community based solution
Community based solution upon common
ownership (Elinor Ostrom (2009 Nobel)):
stable local common pool resource
management:
1. Clearly defined (the contents of the common
pool resource and effective exclusion of external
un-entitled parties);
2. The appropriation and provision of common
resources that are adapted to local conditions;
 design principles
3. Collective-choice arrangements with most resource
appropriators to participate;
4. Effective monitoring by monitors who are part of or
accountable to the appropriators;
5. A scale of graduated sanctions for resource
appropriators who violate community rules;
6. Mechanisms of conflict resolution that are cheap
and of easy access;
7. Self-determination of the community recognized by
higher-level authorities; and
8. In the case of larger common-pool resources,
organization in the form of multiple layers of nested
enterprises, with small local CPRs at the base level.
Why arent cows extinct but bisons
were almost?
Outright
Privatization
 Public goods
Why are public goods mostly supplied by the
government?

How much national defense should we have?

 Paying for public goods (*)
Each of you have $100. If you contribute $ ,
all $ contributed from all of you will return
0.2 to each of you. Hence the overall
benefit to you is 100 + 0.2 . How
much will you contribute?
1. $0
2. $20
3. $50
4. $100
 Public goods dilemma
Free rider problem
When individuals are not paying for a good because it
is nonexcludable
Providing goods/services is good for all but not
executable

Solution
The government makes paying for it mandatory

How much public goods to supply?

 Having air conditioning?
Suppose you value the
comfort brought by the
air-conditioning in your
own room as $10. If the
electricity bill will go up
by $50 for the air-con to
bring that comfort,
should you turn on the
air conditioning?
1. Yes
2. No
 Having air conditioning? (*)
Suppose each of you
value the comfort brought
by the air-conditioning in
this classroom as $10. If
the electricity bill will go
up by $50 for the air-con
to bring that comfort,
should we turn on the air
conditioning?
1. Yes
2. No
 Marginal social benefit from nonexcludable
goods should the sum of individual marginal
benefits for the same unit from the collective
perspective.

Under what price are we willing to supply the

air conditioning in this classroom ?
Efficient Public goods provision (*)
is sum of individual benefits

25
How much will
15 individuals
supply at most
10 in private

market?

1 2 3 4
 Efficient Public goods provision
is sum of individual benefits

25

How much
15 should be
10 supplied from
the societal
perspective?

1 2 3 4
 Efficient Public goods provision
is sum of individual benefits

25

15
10

1 2 3 : social optimal
 Another degree lower? (*)
The table describes the marginal Alex Bob Cindy
benefits for Alex, Bob and Cindy 1st degree $5 $4 $3
who share an apartment with a
central air conditioning when its
2nd degree $4 $3 $2
set at a temperature lowered 3rd degree $3 $2 $1
than the current one. The 4th degree $2 $1 $0
electricity bill will go up by $8
each time they lower the 1. $21
temperature by one degree. The 2. $12
marginal social benefit from 3. $9
making it 1st degree cooler is 4. $4
 Another degree lower?
The table describes the Alex Bob Cindy
marginal benefits for Alex,
Bob and Cindy who share an
1st degree $5 $4 $3
apartment with a central air 2nd degree $4 $3 $2
conditioning when its set at a 3rd degree $3 $2 $1
temperature lowered than the
current one. The electricity 4th degree $2 $1 $0
bill will go up by $8 each time
they lower the temperature
by one degree. The marginal
1. $21
social benefit from making it 2. $12
2nd degree cooler is 3. $9
4. $4
 Another degree lower
The table describes the Alex Bob Cindy
marginal benefits for Alex,
Bob and Cindy who share an
1st degree $5 $4 $3
apartment with a central air 2nd degree $4 $3 $2
conditioning when its set at a 3rd degree $3 $2 $1
temperature lowered than the
current one. The electricity 4th degree $2 $1 $0
bill will go up by $8 each time
they lower the temperature 1. 1
by one degree. By how many 2. 2
degrees should they lower the 3. 3
temperature? 4. 4
Private Provision of Public Goods

Tzuchi:
Social transfer
Public service

:
Road Paving;
bridge building
 Possible shortcoming of charity?

Money may not go to the areas of most critical

need
Too variable
When economy is in downturn (needed the
most), giving decreases
 Conclusions
CPR and Public goods are both nonexcludable,
the former is high while the later is low in
rivalry
Challenges for CPR are externality and
sustainability while those for public goods are
free riding;
CPR can be maintained with proper
governmental or private management; public
can be supplied by public or charity resources