Thursday, December 23, 2010

Costs of each of the two sides of the common property/private property coin

My friend Juliane alerted me to this article, It suggests that the "tragedy of the commons" is one side of a coin with two sides. As is well known, holding a resource as common property may lead to its over exploitation and destruction, as in the case of commonly held forests in which everyone cuts wood and no one replants or conserves the trees. The other side of the coin, according to the authors, citing Preston McAfee and Alan Miller, is that private ownership can lead to underutilization of the resource.
First, if a good become unavailable, there is a waste of resource trying to find other ways to consume. Second, there could be underutilization if social benefit differs from the private benefits of the owner. The problem is not trivial, for example think about the attribution of radio, phone or wifi frequencies that lead to significant underuse of some frequencies others would love to use.
Of course, in many situations people holding property in common institutionalize means to effectively maintain and sustainably utilize the property. Think of the terraced rice fields in Bali that have been sustainably utilized for centuries following rules institutionalized in the local religious and farming practice.

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