What is a Common-Pool Resource?
In economics, common-pool resources (CPR) are goods that exhibit the characteristics of both private and public goods. But, unlike a true 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.
- A common-pool resource is a hybrid between a public and private good in that is shared (non-rivalrous) but also scarce, having a finite supply.
- Common-pool resources are subject to the tragedy of the commons, where everybody acting for their own benefit actually over-consumes the resource, depleting it for all.
- Common-pool resources are found in the example of overfishing, water-management issues, and air rights, among many others.
Understanding Common-Pool Resources
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.
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 parable ostensibly about a common-pool resource. In the original version of the tragedy of the commons, a shepherd grazes his flock on the green grass in a common meadow. A second shepherd, seeing the green grass figures that it will be best for his herd to also graze there. Soon, even more shepherds determine that it is also best for them to let their sheep 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 sheep.
In economic terms, the tragedy of the commons may occur when an economic good is both rivalrous in consumption and non-excludable. These types of goods are called common-pool resource goods (as opposed to private goods, club goods, or public goods).
A good that is 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 tragedy for the commons to occur the good must also be scarce, since a non-scarce good cannot be rivalrous in consumption. A good that is non-excludable means that individual consumers are unable to prevent others from also consuming the good.
It is this combination of properties (scarcity, rivalry in consumption, and non-excludability) that creates 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.