Such cases have contributed to a growing conviction among biologists that reciprocity is the basis of social life in animals like primates and dolphins, too. Male dolphins call in their debts when collecting allies to help them abduct females from other groups. Baboons and chimpanzees remember past favors when coming to one another's aid in fights. And human beings? Kim Hill and Hillard Kaplan, of the University of New Mexico, have discovered that among the Ache people of Paraguay, successful hunters share spare meat with those who have helped them in the past or might help them in the future.
The implication of these studies is that where cooperation among individuals does evolve, surmounting the prisoner's dilemma, it does so through tit-for-tat. A cautious exchange of favors enables trust to be built upon a scaffolding of individual reward. The conclusion of biology, in other words, is a hopeful one. Cooperation can emerge naturally. The collective interest can be served by the pursuit of selfish interests.
THE TRAGEDY OF THE COMMONS
ECONOMISTS are interested in the prisoner's dilemma as a paradoxical case in which individually rational behavior leads to collectively irrational results—both accomplices spend three years in jail when they could have spent only one. This makes it a model of a "commons" problem, the archetype of which is the history of medieval English common land. In 1968 the ecologist Garrett Hardin wrote an article in Science magazine that explained "the tragedy of the commons"—why common land tended to suffer from overgrazing, and why every sea fishery suffers from overfishing. It is because the benefits that each extra cow (or netful of fish) brings are reaped by its owner, but the costs of the extra strain it puts on the grass (or on fish stocks) are shared among all the users of what is held in common. In economic jargon, the costs are externalized. Individually rational behavior deteriorates into collective ruin.
The ozone hole and the greenhouse effect are classic tragedies of the commons in the making: each time you burn a gallon of gas to drive into town, you reap the benefit of it, but the environmental cost is shared with all five billion other members of the human race. You are a "free rider." Being rational, you drive, and the atmosphere's capacity to absorb carbon dioxide is "overgrazed," and the globe warms. Even if individuals will benefit in the long run from the prevention of global warming, in the short run such prevention will cost them dear. As Michael McGinnis and Elinor Ostrom, of Indiana University at Bloomington, put it in a recent paper, global warming is a "classic dilemma of collective action: a large group of potential beneficiaries facing diffuse and uncertain gains is much harder to organize for collective action than clearly defined groups who are being asked to suffer easily understandable costs."
Hardin recognized two ways to avoid overexploiting commons. One is to privatize them, so that the owner has both costs and benefits. Now he has every incentive not to overgraze. The other is to regulate them by having an outside agency with the force of law behind it—a government, in short -restrict the number of cattle.
At the time Hardin published his article, the latter solution was very popular. Governments throughout the world reacted to the mere existence of a commons problem by grabbing powers of regulation. Most egregiously, in the Indian subcontinent communally exploited forests and grasslands were nationalized and put under the charge of centralized bureaucracies far away. This might have worked if governments were competent and incorruptible, and had bottomless resources to police their charges. But it made problems worse, because the forest was no longer the possession of the local village even collectively. So the grazing, poaching, and logging intensified—the cost had been externalized not just to the rest of the village but to the entire country.
The whole structure of pollution regulation in the United States represents a centralized solution to a commons problem. Bureaucrats decide, in response to pressure from lobbyists, exactly what levels of pollution to allow, usually give no credit for any reductions below the threshold, and even specify the technologies to be used (the so-called "best available technology" policy). This creates perverse incentives for polluters, because it makes pollution free up to the threshold, and so there is no encouragement to reduce pollution further. Howard Klee, the director of regulatory affairs at Amoco Corporation, gives a dramatic account of how topsy-turvy this world of "command and control" can become. "If your company does voluntary control of pollution rather than waiting for regulation, it is punished by putting itself at a comparative disadvantage. The guy who does nothing until forced to by law is rewarded." Amoco and the Environmental Protection Agency did a thorough study of one refinery in Yorktown, Virginia, to discover what pollutants came out from it and how dangerous each was. Their conclusion was startling. Some of the things that Amoco and other refiners were required to do by EPA regulations were less effective than alternatives; meanwhile, pollution from many sources that government does not regulate could have been decreased. The study group concluded that for one fourth of the amount that it currently spends on pollution control, Amoco could achieve the same effect in protection of health and the environment—just by spending money where it made a difference, rather than where government dictated.
A more general way, favored by free-market economists, of putting the same point is that regulatory regimes set the value of cleanliness at zero: if a company wishes to produce any pollutant, at present it can do so free, as long as it produces less than the legal limit. If, instead, it had to buy a quota from the government, it would have an incentive to drive emissions as low as possible to keep costs down, and the government would have a source of revenue to spend on environmental protection. The 1990 Clean Air Act set up a market in tradable pollution permits for sulfur-dioxide emissions, which is a form of privatization.
THE PITFALLS OF PRIVATIZATION
BECAUSE privatizing a common resource can internalize the costs of damaging it, economists increasingly call for privatization as the solution to commons problems. After all, the original commons—common grazing land in England—were gradually "enclosed" by thorn hedges and divided among private owners. Though the reasons are complex, among them undoubtedly was the accountability of the private landowner. As Sir Anthony Fitzherbert put it in The Boke of Husbandrie (1534): "And thoughe a man be but a farmer, and shall have his farm XX  yeres, it is lesse coste to hym, and more profyte to quyckeset [fence with thorns], dyche and hedge, than to have his cattell goo before the herdeman [on common land]." The hawthorn hedge did for England what barbed wire did for the prairies -it privatized a common.
It would be possible to define private property rights in clean air. Paul Romer, of Berkeley, points out that the atmosphere is not like the light from a lighthouse, freely shared by all users. One person cannot use a given chunk of air for seeing through—or comfortably breathing—after another person has filled it with pollution any more than two people in succession can kill the same whale. What stands in the way of privatizing whales or the atmosphere is that enforcement of a market would require as large a bureaucracy as if the whole thing had been centralized in the first place.
The privatization route has other drawbacks. The enclosure movement itself sparked at least three serious rebellions against the established order by self-employed yeomen dispossessed when commons were divided. It would be much the same today. Were whale-killing rights to be auctioned to the highest bidder, protectors (who would want to buy rights in order to let them go unused) would likely be unable to match the buying power of the whalers. If U.S. citizens were to be sold shares in their national parks, those who would rather operate strip mines or charge access might be prepared to pay a premium for the shares, whereas those who would keep the parks pristine and allow visitors free access might not.
Moreover, there is no guarantee that rationality would call for a private owner of an environmental public good to preserve it or use it sustainably. Twenty years ago Colin Clark, a mathematician at the University of British Columbia, wrote an article in Science pointing out that under certain circumstances it might make economic sense to exterminate whales. What he meant was that because interest rates could allow money to grow faster than whales reproduce, even somebody who had a certain monopoly over the world's whales and could therefore forget about free riders should not, for reasons of economic self-interest, take a sustainable yield of the animals. It would be more profitable to kill them all, bank the proceeds, sell the equipment, and live off the interest.
So until recently the economists had emerged from their study of the prisoner's dilemma more pessimistic than the biologists. Cooperation, they concluded, could not be imposed by a central bureaucracy, nor would it emerge from the allocation of private property rights. The destructive free-for-all of Fowler, Kansas, not the cooperative harmony of Valencia's huerta, was the inevitable fate of common-pool resources.
THE MIDDLE WAY
IN the past few years, however, there has been a glint of hope amid the gloom. And it bears an uncanny similarity to tit-for-tat, in that it rewards cooperators with cooperation and punishes defectors with defection—a strategy animals often use. Elinor Ostrom and her colleagues at Indiana University have made a special study of commons problems that were solved, including the Valencia irrigation system, and she finds that the connective thread is neither privatization nor centralization. She believes that local people can and do get together to solve their difficulties, as long as the community is small, stable, and communicating, and has a strong concern for the future. Among the examples she cites is a Turkish inshore fishery at Alanya. In the 1970s the local fishermen fell into the usual trap of heavy fishing, conflict, and potential depletion. But they then developed an ingenious and complicated set of rules, allocating by lot each known fishing location to a licensed fisher in a pattern that rotates through the season. Enforcement is done by the fishermen themselves, though the government recognizes the system in law.
Valencia is much the same. Individuals know each other and can quickly identify cheaters. Just as in tit-for-tat, because the game is played again and again, any cheater risks ostracism and sanction in the next round. So a small, stable community that interacts repeatedly can find a way to pursue the collective interest—by altering the individual calculation.
"There's a presumption out there that users always overexploit a common resource," Ostrom says, "and therefore governments always have to step in and set things right. But the many cases of well-governed and -managed irrigation systems, fisheries, and forests show this to be an inadequate starting point. A faraway government could never have found the resources to design systems like Alanya." Ostrom is critical of the unthinking application of oversimplified game-theory models because, she says, economists and biologists alike frequently begin to believe that people who have depended on a given economic or biological resource for centuries are incapable of communicating, devising rules, and monitoring one another. She admits that cooperation is more likely in small groups that have common interests and the autonomy to create and enforce their own rules.
Some biologists go further, and argue that even quite big groups can cooperate. Egbert Leigh, of the Smithsonian Tropical Research Institute, points out that commons problems go deep into the genetics of animals and plants. To run a human body, 75,000 different genes must "agree" to cooperate and suppress free-riders (free-riding genes, known as outlaw genes, are increasingly recognized as a major force in evolution). Mostly they do, but why? Leigh found the answer in Adam Smith, who argued, in Leigh's words, that "if individuals had sufficient common interest in their groups good, they would combine to suppress the activities of members acting contrary to the group's welfare." Leigh calls this idea a "parliament of genes," though it is crucial to it that all members of such a parliament would suffer if cooperation broke down—as the members of real national parliaments do not when they impose local solutions.