Question

List the features of the a) tragedy of the commons and b) the anticommons. What do these tragedies have in common? How are they different? Give an example of each and propose a solution using the tools of law and economics.

Answer 1

The tragedy of Commons :

It is a situation where a number of individuals can use a particular resource and no one has a right to restrain anyone from the use of a resource. It leads to overuse of a particular resource and creates negative externalities.

Features

1 Equal right on resource

2 Nobody can stop anyone from using resource

3 no limits on the use of a resource

4 negative externalities (no consideration of social cost)

Example:

Environment

Everybody has a common right to use nature, but some people overuse it which leads to decrease in the welfare by cutting more trees than required or polluting environment on a high scale. The government can put a limit on the use of environmental resources by law and also put taxes on the producing pollution.

The tragedy of Anticommons:

When the number of individuals has a right to restrain others from the use of the particular scarce resource. No one has an actual freedom to use that particular resource.

Features

1 Equal rights of excluding others

2 underuse of productive resource

3 static externalities (rights of exclusion cuts the importance of similar privileges held by other)

Example:

Multiple owners of farmland

Suppose a farmer gives his land to his sons, now there are multiple owners of this particular land. Any son can stop another one to use it. in this case, they can divide the land equally among themselves or they can use it on an alternate basis.

In both the cases, there is not a proper arrangement of private and social incentives for the number of owners in the use of a common property. This is because of the presence of externalities which is not taken by the users in commons and excluders in anticommons. In both, the scenarios right of use and exclusion have non-approving limits. There will be a welfare loss due to this.