Common Property Resources Assignment Help

Sources of Market Failure - Common Property Resources

Common Property Resources:

Common property resources (CPRs) are those resources which are owned in common rather than privately. These mums have characteristics that typically offer some technical advantage to joint management or have some difficulty with the definition of private property rights. These resources may not have a formal owner but some kind of ownership control is exercised collectively and the resources are often managed as common property.

The goods produced from these resources are consumed individually (as private goods). For example, forests and grazing lands are CPRs and they provide goods such as firewood and fodder. CPRs can exhibit free or restricted access. The former regime would be the main focus of this section. Situations where there are no restrictions on the access to a resource or its use, are called pee or open access CPR. When a resource is in abundant supply, it does not make sense to restrict its access or limit its use. However, if the demand for the resource increases due to factors like population pressure, industrialization, economic growth, etc. and the resource becomes scarce, a common property free access regime is no longer appropriate.

The market failure associated with open access CPRs is that there is a strong tendency towards overuse or overexploitation. To see this consider an agricultural village in which the villagers graze their cows on a common field. An individual villager would use the grazing land to the point where his private marginal cost equals his private marginal revenue. But in doing so, each villager generates an external cost borne by all other villagers in terms of reduced fodder available for their cows that would reduce the productivity of cows. Since each villager ignores the social cost of grazing an additional cow, too many cows will be grazed on the common land. Thus the social cost of exploiting the resource exceeds the individual private cost. In this sense, open-access common property resources are closely linked to congestible public goods.

The above example illustrates that free riding and other mechanisms that lead to the undersupply of public goods may also lead to the overuse of common pool resources. The overuse of public resources is termed as the "Tragedy of the Commons". Overfishing in international waters, deforestation, and several species of animals being on the verge of extinction due to overhunting, are some of the examples of this phenomenon. Of course assigning private rights to the resource can ensure its efficient use. In situations where there is some difficulty in assigning such rights, the overuse can be prevented by social institutions that are strong enough to limit the use of the resource by individuals. These are called restricted access CPRs. Historically, many communities have successfully conserved their common property resources through following a set of rules that allocate rights and responsibilities towards resource use.

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