Common-Pool Resource

What Is a Common-Pool Resource?

A common-pool resource is a good that functions as a hybrid between a public and private good because it is shared and available to everyone but also scarce, with a finite supply. These open-access resources are susceptible to overexploitation and diminished availability if each individual pursues their own self-interest.

Understanding Common-Pool Resources

Common-pool resources share essential characteristics with both public and private goods. Like public goods, common-pool resources are non-excludable. However, unlike public goods, common-pool resources are rivalrous in consumption, similar to private goods, or the normal goods that we buy and sell on markets. All three types of economic goods are also scarce; the amount available at any given point in time is limited, so people economize over how they use and consume them.

Being rivalrous in consumption means that when someone consumes a unit of the good, then that unit is no longer available for others to consume; all consumers are rivals competing for the good, and each person’s consumption subtracts from the total stock of the good available. Note that in order for a common-pool resource to be economically relevant it must also be scarce since a non-scarce good cannot be rivalrous in consumption and, by definition, anything that is not scarce is not an economic good anyway. A good that is non-excludable means that no one is able to prevent others from consuming the good.

The combination of these two properties (non-excludability in supply and rivalry in consumption) means that common-pool resources are susceptible to overuse and congestion. Because individual and group interests are in conflict, they create incentives for users to ignore the social costs of their extraction decisions, as the group has to bear the cost of managing, protecting, and nurturing the resource. This is why they are prone to the tragedy of the commons when every individual tries to reap the greatest benefit from a given resource.

Examples of a Common-Pool Resource

Common-pool goods are typically regulated and nurtured in order to prevent demand from overwhelming supply and allow for their continued exploitation. Examples of common-pool resources include forests, man-made irrigation systems, fishing grounds, and groundwater basins.

For instance, fishermen have an incentive to harvest as many fish as possible because if they do not, someone else will — so without management and regulation, fish stocks soon become depleted. And while a river might supply many cities with drinking water, manufacturing plants might be tempted to pollute the river if they were not prohibited from doing so by law because someone else would bear the costs.

In California, where there is a huge demand for surface water but supplies are limited, common pool problems are exacerbated because the state does not manage groundwater basins at the state level. During the 2012-2016 drought, farmers with senior water rights dating back to the 19th century could use as much water as they wanted, while cities and towns had to make drastic cutbacks to water use.

The Tragedy of the Commons

The tragedy of the commons is a term first coined by Garrett Hardin to describe the problem of a common-pool resource.

In the original version of the tragedy of the commons, a herdsman grazes his cattle on the green grass in a common meadow. A second herdsman, upon seeing the green grass, figures that it will be best for his herd to also graze there. Soon, even more herders determine that it is also best for them to let their cattle graze in the meadow. However, by each acting in their own self-interest, all of the grass is devoured and there is nothing left to feed any of the cattle.

The properties (scarcity, rivalry in consumption, and non-excludability) that characterize the common-pool resource make it susceptible to the tragedy of the commons. Each consumer maximizes the value they get from the good by consuming as much as they can as fast as they can before others deplete the resource.

No one has an incentive to reinvest in maintaining or reproducing the good because they cannot prevent others from appropriating the value of the investment by consuming the product for themselves. The good becomes more and more scarce and may end up entirely depleted.

Common solutions to the tragedy of the commons are government regulation and voluntary collective action to limit consumption.