DEFINITION of 'Common-Pool Resource'

Common-pool resources (CPR), in economics, are goods that exhibit the characteristics of both private and public goods. But unlike a public good – which can be consumed without reducing its availability to other individuals – common-pool resources have a finite supply and provide diminished benefits to everyone, if each individual pursues their own self-interest.

BREAKING DOWN 'Common-Pool Resource'

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.

For example, 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.

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. Other examples of common-pool resources include forests, man-made irrigation systems, fishing grounds and groundwater basins.

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

RELATED TERMS
  1. Multinational Pooling

    Multinational pooling is a method global companies use to manage ...
  2. Common Pool Resource - CPR

    A common pool resource benefits a group of people, but provides ...
  3. Capital Pool Company (CPC)

    A capital pool company is an alternative way for emerging companies ...
  4. Pooled Funds

    Pooled funds aggregate capital from a number of investors, as ...
  5. Mortgage Pool

    A mortgage pool is a group of mortgages held in trust as collateral ...
  6. Commodity Pool Operator - CPO

    Persons or limited partnerships responsible for investing a commodity ...
Related Articles
  1. Tech

    How to Choose a Cryptocurrency Mining Pool

    Here are some selection criteria cryptocurrency miners should consider before joining a crypto mining pool.
  2. Tech

    The Number Of Dark Pools In Cryptocurrency Trading Is Increasing

    Dark pools, which conduct trades away from cryptocurrency exchanges, are increasing in crypto trading.
  3. Investing

    Opportunities In The Emerging Market's Water Crisis

    Water scarcity and increasing demand caused by population growth is one of the most compelling long-term portfolio themes.
  4. Financial Advisor

    Why Advisors Should Consider Natural Resource ETFs

    Natural resource investments, such as ETFs, can be an attractive long-term addition to a client's portfolio.
  5. Investing

    How The Severe Drought Will Affect Americans

    The drought in the American Midwest is having a drastic effect on the fishing industry, the shipping industry and the farming industry. It will also impact your wallet at the grocery store.
  6. Investing

    Is Water The Next Big Commodity?

    An increase in both population and pollution has made water a very fragile and important resource. Learn the key players.
  7. Trading

    How Forex PAMM Accounts Work

    Among those interested in forex trading, PAMM account offers a good alternative without direct involvement. Here's how PAMM accounts work.
  8. Investing

    Water: The ultimate commodity

    Opportunities to invest in this scarce resource are flowing freely - dive in!
  9. Investing

    6 Things You Think Add Value To Your Home - But Really Don't

    Even though you may enjoy the improvements you make to your house, it doesn't mean that they'll increase its value.
RELATED FAQS
  1. What are the primary advantages of forming a joint venture?

    Understand what the advantages of a joint venture are and discover what make this business strategy a good alternative to ... Read Answer >>
  2. What are the primary disadvantages of forming a joint venture?

    Learn the disadvantages to forming and maintaining a joint venture partnership, including factors business owners should ... Read Answer >>
  3. What is the difference between the equity method and the proportional consolidation ...

    Discover the differences between the equity method and the proportional consolidation method of joint venture accounting, ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center