Question

Explain the nature of the externality associated with common pool resources (like open ocean tuna, clean air and fresh water). Use a graph to illustrate the tragedy of commons.

Answer 1

Ans) Common resources are those which are non excludable but rivalrous in nature. That is, no one can be excluded from using it, but one's usage will deplete its availability for others. For eg- fish in pond.

Since common resources are non excludable in nature, it is hard to restrict anyone from its use. And as they are rivalrous in nature, every person has strong incentive to use it as much as he can. But since anyone can use it, an individual has less incentive to maintain it. This leads to over utilization of resources. Also known as tragedy of commons.

Further, externality is when the bystander bears the cost or benefit of any activity. It is of two types ÷ positive and negative.

Positive externality is when the bystander bears the benefit of any activity. In this case, social benefit is more than private benefit and goods are underconsumed. Eg- vaccine, education, Afforestation etc.

Negative externality is when the bystander bears the cost of any activity. Here, social cost is more than the private cost and goods are overconsumed/ overproduced. Eg- overfishing, pollution etc.

So, tragedy of commons is a negative externality.