The Commons

Suppose that the table below shows the relationship between the number of cows using a large meadow and the amount of milk that can be produced.1 If one person controlled access to this land, it would be foolish for him to allow more than 400 cows to graze there. But when the land is open to all, 500 cows may end up grazing if each of the many herders tries to do what is best for himself. Thus, if there are 100 herders, each with four cows, each cow will produce seven gallons of milk. If one herder adds an extra cow, the total production of milk does not increase, but the production from his herd will. He will have five cows, and each produces 6.98 gallons (after ignoring all digits beyond the second to the right of the decimal point). The fifth cow adds 6.98 gallons of milk. However, each of the four cows he already has will produce .02 gallons less, so the net gain to the herder will be 6.9 gallons. He will not take into consideration the drop in production of .02 gallons from each of the 396 cows that he does not own. Because each herder has the same set of incentives, it may easily happen that there will be 500 cows grazing on the land. Clearly there is an unintended consequence here, and it is of the by-product type. Each herder ignores the effects that his cows have on the productivity of cows he does not own.

Production on the Commons
Number of Cows
Output of Milk (Gallons)

The story above is an example of the problem of the commons. The commons exist whenever there is a resource—such as grazing land, a hunting area, or fishing grounds—that- is open to all. The problem of the commons refers to the absence of any automatic mechanism or incentive to prevent the overuse and depletion of the commonly-held resource. The logic of the problem of the commons is behind many ecological problems, from deforestation to depletion of the ozone layer. There will further discussion of this topic in later pages of CyberEconomics.

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1 We shall ignore all other outputs, such as meat, leather, and fuel. The technical name for a table which shows output depending on inputs is "production function."

Copyright Robert Schenk