Property Rights and the Tragedy of the Commons

By Megan McArdle

Guest post by Jonathan H. Adler, a professor at the Case Western Reserve University School of Law and regular contributor to the Volokh Conspiracy.

Thanks to Megan for inviting me to spend some time over here.  As she mentioned, much of my work focuses on environmental law and policy. I also do a fair amount on "administrative law" more generally (aka the law governing administrative and regulatory process), structural constitutional law (aka federalism and separation of powers), and the Supreme Court. Much of my academic work can be found on my SSRN page. While this first post will discuss some environmental issues, I expect to touch on these other subjects as well, particularly since The Atlantic has given me some of the credit (blame?) for marshaling legal arguments against the constitutionality of the individual mandate.

Much of my environmental work cuts against the traditional pro-regulatory grain of contemporary environmental law and policy. There have been significant environmental gains in many areas over the past fifty years, and traditional regulatory strategies deserve some of the credit, but modern environmental regulation is hardly a model of efficient governmental intervention. What, then, should we do differently? To answer this question it's important to think first about the nature of environmental problems, as our diagnosis of the problems will influence our choice of remedy.

The way we think about environmental concerns was heavily influenced by Garrett Hardin's seminal 1968 essay on "The Tragedy of the Commons." In this essay, Hardin described the fate of a common pasture, unowned and available to all. As Hardin explained, in such a situation it is in each herder's self-interest to maximize his use of the commons at the expense of the community at large. Each herder captures all of the benefit from adding one more animal to his herd. Yet the costs of overgrazing the pasture are distributed among every user of the pasture. And when all of the herders respond to these incentives, the pasture is overgrazed -- hence the tragedy. As Hardin explained it, the pursuit of self-interest in an open-access commons leads to ruin. Without controls on access and use of the underlying resource, the tragedy of the commons is inevitable. 

Hardin's essay is tremendously important, not so much because he discovered the commons problem -- others had documented this dynamic before -- but because he popularized a useful way of thinking about many environmental problems. As Hardin explained, the metaphor of the commons can be applied to virtually any environmental resource. Instead of a pasture we could talk of a herd of animals, a fishery, a lake or even an airshed. In each case, the underlying economic dynamic is the same, and if access and use are not limited in some fashion, over-use is inevitable as demand grows. [A quick caveat: What Hardin called the "commons," is more properly described as an open-access commons, as there are some resources that are owned or managed in common that do not suffer the tragedy because they are subject to community management of some form or other, but the central point stands.]

Hardin's diagnosis is often identified as a rationale for prescriptive regulation Hardin famously termed "mutual coercion, mutually agreed upon." This was his way of describing those regulations we adopt to keep a common resource of any sort from befalling the fate of an open-access commons, and it's largely the path we've followed in environmental policy for the past fifty years.

Administrative regulations have produced some gains, but also many failings. Our air and water are cleaner today than forty years ago -- and substantially so -- but many ecological resources are as threatened now as they ever were. Federal environmental regulation was not the savior many think, and many environmental regulations actually get in the way of further progress. The imposition of land-use controls under the Endangered Species Act, for example, discourages effective conservation on private land. 

One thing that Hardin overlooked is that the political process often replicates the same economic dynamic that encourages the tragedy of the commons -- a dynamic fostered by the ability to capture concentrated benefits while dispersing the costs. Like the herder who has an incentive to put out yet one more animal to graze, each interest group has every incentive to seek special benefits through the political process, while dispersing the costs of providing those benefits to the public at large. Just as no herder has adequate incentive to withhold from grazing one more animal, no interest group has adequate incentive to forego its turn to obtain concentrated benefits at public expense. No interest group has adequate incentive to put the interests of the whole ahead of the interests of the few. The logic of collective action discourages investments in sound public policy just as it discourages investments in sound ecological stewardship. This, in addition to the pervasiveness of special-interest rent seeking, explains many of the failings of centralized regulation. So despite the environmental gains of the past half-century, real challenges remain, and the tragedy of the commons is still with us.

Administrative regulation has been the dominant tool in environmental policy over the past half-century, but it was not the only prescription Hardin offered. What many forget is Hardin actually offered two prescriptions for preventing the tragedy of the commons. "Mutual coercion, mutually agreed upon" was one approach; but Hardin had another. In the alternative, Hardin suggested that greater reliance on property rights was a proven way to prevent the tragedy of the commons. As he explained, the tragedy of the commons "is averted by private property or something formally like it." Indeed, Hardin suggested this was one of the primary functions of property in land. 

As Hardin recognized, where property rights are well-defined and secure, the tragedy of the commons is less likely for each owner has ample incentive to act as a steward, caring for the underlying resource and preventing its overuse, both for themselves, and others who may value the underlying resource. In this way, the institution of property rights "deters us from exhausting the positive resources of the earth."

Hardin was not altogether sanguine about the potential for property rights to avert the tragedy of the commons in many areas because he feared it would be too difficult to define and defend property rights in threatened ecological resources, particularly against the threat of pollution. It's one thing to post and fence private land. Quite another to demarcate property rights in air or water. Yet there is far greater potential here than is commonly realized. Enhanced technologies and greater understanding of ecological conditions make it possible to conceive or property rights today where once they were the stuff of ecological fantasy.   

Pursuing the identification and expansion of property rights in ecological resources will be difficult, but the potential benefits are large. We understand the importance of property rights for economic prosperity, but we are also beginning to understand the importance of property rights for ecological sustainability. What we're learning is that where property-based institutions can be adapted to ecological resources more sustainable practices tend to result (and in my next post I'll provide a concrete example).

The importance of property rights for environmental conservation is not a new idea. It lay at the core of the early American conservation movement. After all, it was the institution of property rights that enabled the first Audubon Societies to post private reserves to protect birds from hunters who sought to collect their feathers for women's hats. It was the institution of property rights that enabled Rosalie Edge to turn Hawk Mountain from a hunting ground into a bird sanctuary. It is the institution of property rights that allows land trusts large and small, from the American Prairie Foundation to the Western Reserve Land Conservancy to protect precious places. The need to day is to keep moving beyond property in land and adopt property institutions to a wider array of ecological resources so that property institutions can have the chance to succeed in those areas where mutual coercion, mutually agreed upon has failed.

This article available online at:

http://www.theatlantic.com/business/archive/2012/05/property-rights-and-the-tragedy-of-the-commons/257549/