The Tragedy of the Commons

The "Tragedy" Developed

A Nobel-Worthy Solution

Hardin, like many economists, was more cynical than most. Direct opposition to his cynicism came from economic optimist Elinor Ostrom. Ostrom won the Nobel Prize in Economics in 2009 due to her work on the Tragedy of the Commons – specifically, solutions to the problem. There are two general solutions: one is privatization of common goods and the other is Hardin’s approach of an Associate System of Exchange. Privatization would require knowledge of how to sustain the resource in question in the long-run as well as investment in technological innovation to maximize this resource’s efficiency. Ostrom’s approach requires creating environments of trust whereby we can maximize each other’s benefits through the medium of exchange. The Tragedy of the Commons is a symptom of a market failure, below we will discuss how individuals and firms alike can fulfill the role the market should play.

The Privatization Problem

If the solution were to be privatization of finite resources, one would hypothesize that businesses would have a better handle on sustainability. The word sustainability is often connotated with other environmental buzz-words often used by firms to portray as friendlier to the biosphere than they truly are. Despite the green washing, we know that firms have a lack of knowledge when it comes to sustainability. For example, the Amazon rainforest is nearing a “point-of-no-return”, California and other states continue to have drought issues leading to issues in crop irrigation. What can firms do, especially those with privileges to access public resources, to stop this from happening? A fundamental knowledge of how that resource interacts with the biosphere is necessary. Production inputs should be restricted to that amount which can be taken from the resource and leaves it with more than was there previously after regeneration. 

A System of Exchange for Sustainability?

From a societal perspective, how can firms and individuals solve the Tragedy of the Commons via the Associate System of Exchange? Exchanges occur when the utility (economic-speak for happiness) one receives from the exchange is higher than the cost of what they gave up. Firms and individuals must find win-win situations; one possibility is a firm’s decision to trade goods and services in exchange for another firm not using a finite resource. This clearly only works because people value goods and services subjectively. In an age of misinformation and sneaky marketing, intrinsic valuation is difficult. Societal efforts are also important in maintaining a firm grip on the true cost of consumption. If a firm can play a role of communicating true value of goods and services, especially those dependent on finite resources, rational individuals will align with that purpose creating customers for that firm and a sustainable biosphere for the individual. 

Shared resources play an important role in maintaining order in a society. The Tragedy of the Commons is a tragedy not just because of the fiscal implications it has, but also the societal implications. Firms may decide to continue to be complicit in the status quo production as-is, or learn from the Tragedy of the Commons and understand the long-term benefits of creating long-term solutions.