C.  Common Property Resources and Public Goods

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1.  Types of goods

• Nonexcludable good - available to all users, impossible or difficult to exclude potential users

• Rival good - use by one person diminishes the quantity or quality of the good available to others

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2.  Common property resources

• Resource that is available to everyone (nonexcludable), but use of the resource may diminish the quantity or quality available to others (rival)

• Open-access resource - a resource that offers unrestricted and unregulated access

Ex. - Fisheries, atmosphere

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a.  Production

• Total product - total quantity of a good or service produced with a given quantity of inputs

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b.  Profitability

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• Tragedy of the Commons - tendency for common property resources to be overexploited

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c.  Marginal analysis

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d.   Managing common property resources

(1)  Policies

(a)  License fee

• Fee paid for access to a resource

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(b)  Quota

• Restrictions on the permissible harvest of a resource

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(c)  Individual transferable quota (ITQ)

• Tradeable rights to harvest a resource

• Market will establish optimal price for the quota

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(d)  Quota auctions

• Competition among bidders would lead to optimal price for the quotas

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(e)  Privatization

• Incentive for owners to manage resources sustainably

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(f)  Agreements among users

• Necessary conditions (Elinor Ostrom):

- Most users of a resource should be involved in devising rules for managing the resource

-  There should be monitors of the resource, accountable to the resource users, who periodically evaluate conditions

- There should be mechanisms to resolve conflicts that are responsive and low-cost

- Rules for managing the resource should be adapted to local conditions

- There should be graduated sanctions for resource users who violate the rules

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3.  The environment as a public good

• Goods available to all (nonexcludable) and whose use by one person does not reduce their availability to others (nonrival)

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a.  Private provision not possible

(1)  Nonexcludability means price can't be charged

(2)  Voluntary donations won't work because of free riders - people that obtain benefits from a public good without having to pay for it

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• Requires government involvement, decisions made through political system

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b.  Optimal provision of a public good

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4.  Global commons

• Global common property resources

Ex. - Atmosphere, oceans

• Global economic system depends on health of global ecosystems

• Economic development must be adapted to planetary limits

• Requires agreement between different governments