The tragedy of the commons and why governments restrict common resources

Meaning of the tragedy of the commons. A common resource is rival in use but non-excludable: what one person takes leaves less for others, yet no one can be kept out. The tragedy of the commons is the outcome that such a resource is used far beyond its efficient level, and may be run down or destroyed, because each user decides only for himself.

Example (our own). Two hundred farmers in a Punjab block draw water from the same underground aquifer. Each farmer gains the full value of pumping for one more hour, but the fall in the water table that his pumping causes is shared by every farmer in the block. Each therefore keeps pumping, the water table drops year after year, and wells that once reached water at 10 metres must now go far deeper. Each farmer acted sensibly for himself; together they ran down the water they all depend on.

Why it happens. The tragedy is a case of a negative externality: when one user takes more, he does not count the harm his action does to the other users, who now find less of the resource left. Because the resource is non-excludable, no one can be charged for this harm or stopped from causing it, so private use runs past the level that is best for the group as a whole.

Why governments restrict the use of common resources.

• To correct the overuse. Since each user ignores the cost he imposes on others, the market alone gives too much use; the government steps in to bring use down towards the efficient level, which no single user has an incentive to do.
• To protect the resource for the future. Overused fisheries, forests, groundwater and grazing land can collapse, harming everyone who depends on them, including later generations. The same logic applies at world scale to the atmosphere, where each country burns fuel for its own benefit and the total release exceeds what the environment can absorb.
• By changing who controls the resource. A government can limit use directly (fishing seasons, quotas on catch, licences to graze), or turn the common resource into something with an owner by defining property rights, so that the owner can exclude others and has a reason to use the resource carefully; it can also auction the right of use or charge for it.

Conclusion. The tragedy of the commons arises because a common resource is rival but no one can be excluded, so each user's overuse imposes a cost on others that he ignores. Governments restrict its use, or assign rights over it, to bring use back to a level that keeps the resource productive for everyone.