Common-Property Resourcesrelated to stu¤ in KW Chapter 17erm: rough draft Dec. 10, 2013Resources, as you know, are things that are combined with other thingsto produce the things that we want: inputs into the production of goods andservicesExamples include capital, labor, land, minerals, forests, …sh, animals, ecosys-tems, the atmosphere, natural areas, watersheds, oceans, etc.Resources are scarce: there are not enough to produce everything everyonewill ever want. This scarcity creates THE ECONOMIC PROBLEM.1 Most resources are congestible (rivalrous inthe words of KW); this means that if some ofthe resource is used for one purpose the samechunk cannot be used for another purpose:one use precludes another use.Examples: Labor used to produce widgets cannot be used to produce snerds A …sh that goes in my mouth cannot go in yours If water is used to store pollutants it cannot also be a drinking source ora place to raise …sh. The same gallon of gasoline cannot run both your and my car.If a gallon of gas was not congestible, we all could burn the same gallon ofgas.1Looking ahead, public goods are not congestible.For the rest of this lecture, we will consider only congestible resources.21Note that t his does not imply that we could all drive forever o n this one single gallon ofgas. It means that we could all drive, on that single gallon, as far as the gallo n w ould take usin our car.2CP resources and public goods are not the same thing. The next lecture i s on public goods12 Consider congestible resources that have a zeroprice: everyone can take as much of the re-source as is available without having to payfor the resource: it has a zero price. Such re-sources are called common-property resources,hereafter CP resources.The market (or lack of) puts a zero price on CP resources because there is nogate-keeper to collectAnother way to de…ne a CP resource is to say it is a resource to which accessis not controlled.If a CP resource is not scarce - most are scarce - the market will e¢ cientlyallocate use of that CP resource. (In explanation, if the resource is not scarce,everyone should consume as much of it as they want, and at a zero price.)3However, if the CP resource is scare - the market will fail to e¢ cientlyallocate its use.CP resources are a major cause of market failure.A resource is common property if access to it is not controlled. That is, it iscommon property if no one e¤ectively owns the resource. If no one can controlaccess to a resource then there is no "price" that must be paid to acquire theresource.4While few resources in this world are pure common-property resources (ac-cess to them is completely uncontrolled), access to many environmental re-sources is largely uncontrolled, or controlled to only a limited extent.Are the contents of your fridge a common property resource? What featureswould your fridge and its content have if the contents were CP? You probablywouldn’t be able to keep beer in stock –you would not be able to sell the beerat a positive price (why would anyone pay if they can have it for free)— its stock3Your book implicitly assumes all CP resources ar e scare.4One has to be a bit careful with the adjective "common-property." it suggests, incorrectly,that the the resource is commonly owned, as in, "Yellowstone National Park is commonlyowned by the Ameri can people." A better adjective might be "uncontrolled" as in access toit i s not controlled–there is no gatekeeper.Note that there can be, on paper, lega l ownership without control. This is often the situationin poor countries with weak governments .The word "common" comes from "common"s the center of towns in England and NewEngland where ev eryone could graze their animals. As in the "Bost on Commons."2size (the quantity of beer) would be driven down to ine¢ cient levels, possiblyto extinction.A common-property …shery causes the market to fail, so will a common-property oil …eld, a common-prop erty wilderness area, a commonly-owned airspace, a common- property aquifer, a common-property rain forest, and acommon-property road.The common-property nature of many animals is a signi…cant contributorto their being endangered.The common-property nature of the air in many places is a major reason forexcessive air pollution from an e¢ ciency perspective.33 Consider commercial …shermen who …sh theopen seasThey produce caught …sh, which they sell.Inputs into the production of caught …sh include labor, capital, and …shswimming around in the open ocean.The capital and labor is used to get the …sh out of the water and onto thedock. Labor and capital are not common-property resources, so must be paidfor.If the …sh stock is owned (e.g. a commericial …sh farm), the …sherman/harvesterwill have to pay the owner for each …sh harvested, and the owner will charge anamount su¢ cient to cover the decreased value of the stock because it is reducedin size by the harvest.Put simply, if the stock is owned the …sherman will have to pay the oppor-tunity costs of all of the inputs its uses to produce docked …sh, including whatis lost when …sh are removed (harvested) from the stock.Alternatively, if the stock is common property with no owner to charge forharvesting from the stock, the commercial …sherman will not take into accountthe opportunity cost to society of reducing the stock because he or she will nothave to pay this cost (the social cost of …shing will be greater than the privatecost.) That is, when a scarce input is free, people will overuse it –not surprising.Many of the ocean’s …sheries are or have been common-property resources.43.1 For some, maybe me, driving country roads, drinkingbeer, and shooting cows is fun. But, unfortunately, Idon’t do it very often; there is a risk involved; it is afelonyI missed and shot a large pig.5Property rights for cows are well-de…ned and have a long history of enforce-ment; in the old west, cattle rustlers were hanged, it was a capital o¤ense,probably still is in Texas, many things are.Why I don’t shoot very many cows.The police would stop me, I would confess (I get nervous and confess, evenat Customs), and straight to jail I would go: a place with big guys who might…nd me cute, or, at least, a new face.So, if I want to shoot cows, I need to make prior arrangements with therancher: knock on the door, o¤er him a couple grand for each cow I want toshoot, and pay in advance (unless we have already set up a