Tragedy of the Commons

What is the Tragedy of the Commons?

The tragedy of the commons is an economic theory that states that individuals use up resources shared by many to benefit themselves. The reality is often that because individuals tend to act in a selfish way, using resources shared by a group, everyone ends up suffering in the end.

History and Breakdown of the Tragedy of the Commons Theory

The theory was first introduced by William Forster Lloyd in 1833. Lloyd, a British economics writer, created a brief packet that offered the basic concepts behind the tragedy of the commons theory. The general theory and the concepts within it went largely underappreciated until American ecologist and philosopher Garrett Hardin wrote about them in a 1968 issue of “Science” magazine.

Though it may seem self-explanatory, it’s important to understand that in the context of the theory, the “commons” refers to any naturally-occurring resources that can be used and consumed by the public at large. The resources are not independently owned by any individual or company. Resources that fall under this definition include:

• Wildlife – birds, mammals, fish
• Pastures, fields, or wooded areas
• Oil
• Forests
• Precious metals
• The atmosphere
• The oceans

In the tragedy of the commons theory, individuals or groups of individuals – such as companies – make use of natural resources for their own benefit, without considering how their use will affect others or create an impact on a global scale.

The Consequences

While the use of natural resources is an important part of how societies maintain themselves and build relationships with other nations, the tragedy of the commons focuses specifically on the inappropriate and abusive use of such resources. If one person or group overuses the resources, others are likely to get the impression that it’s their right to do so as well. The tragedy, then, is that the abuse of resources spirals out of control and results in a broader impact that can become a global issue.

Practical Example of the Tragedy of the Commons Theory

A good example of the tragedy of the commons theory is the concept of global warming. While the issue remains a hotly debated topic, there is a substantial amount of scientific evidence that the atmosphere and ozone layers have been repeatedly abused and polluted, causing holes that lead to more sun exposure and warmer temperatures on the planet.

Global warming is arguably a perfect example of the tragedy of the commons theory. For centuries, individuals, companies, and societies around the world have been operating plants, driving cars, and using chemicals that have a serious impact on the ozone layer.

The company operating a plant that releases toxic chemicals into the air has an incentive to do so because it allows them to make a profit, without concerning themselves about how it will affect the population around them or that of the world. Sadly, as is true with the above example, the actions of one or many can have a lasting effect on everyone.

Summary

The tragedy of the commons theory isn’t complicated: an individual acts with selfish motives and utilizes resources – often excessively – that belong to a bigger group. In time, the more often the process is repeated, the more damage that is done and the more people who are affected. Depending on the resources being overused, the long-term effects can be felt on a massive, even global, scale.

More Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

• Greenwashing
• Negative Externalities
• Pigouvian Tax
• Voluntary Carbon Market
• See all economics resources