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Common-Pool Resources

Goods that typically possess a natural or constructed system of resources

What are Common-Pool Resources?

Common-pool resources (CPRs), also referred to as common goods, are goods that typically possess a natural or constructed system of resources. CPRs are non-excludable, meaning that individuals or populations typically can’t be prevented from using them, even if they aren’t paying for them. They are, however, rivalrous, meaning that some part of their usage makes it more difficult for others to utilize them.

 

Common-Pool Resources

 

Congestion and Overuse

Common-pool resources often suffer from being overused or becoming congested by use. It is largely due to the fact that such resources usually possess a primary resource, or stock variable, as well as smaller units that can be extracted and used, or the flow variable of the resource. There are a number of resources that fall into the common-pool category, including:

  • Fisheries
  • Pastures
  • Irrigation systems

 

Example of Common-Pool Resources

With common-pool resources, overuse occurs because of subtractability (rivalry). For example, consider a pasture. If the land isn’t necessarily privately owned and is shared between multiple farmers grazing their cattle, then the pasture is a common-pool resource because it can’t be effectively exclusive to any of the farmers.

However, as cattle are rotated between areas of the pasture, each area then becomes substantially less valuable to every farmer down the line, with the potential for overgrazing that will make the pasture not usable for any cattle, at least for a period of time. Here, the general acreage of the pasture space would be the primary resource or stock variable and the grass, then, would be the flow variable.

 

Controlling Common-Pool Resources

In order to make sure that CPRs retain their non-excludability and to work against the tendency toward overuse or congestion, protocols are typically established. The protocols include important items such as the following:

  • Establishing the boundaries of the resource, making it clear what space is part of the resource
  • Agreements between all users of the resource (planned or expected), or making assurances that all potential users are aware of the space and rules
  • Careful monitoring of the resource
  • Penalties put in place to sanction users who don’t abide by established agreements on the proper use of the resource
  • Some forum or plan of action for resolution of conflicts if/when they arise

 

With most common-pool resources, legislation, the establishment of rules, and conflict resolution are done at a local level so that the resources aren’t opened up further to overuse or exploitation. The government typically only steps in or is involved if the resources are part of a trade agreement or if disputes over the resources exceed the ability of local governors or other officials to control.

In some cases, the government must be included so that overuse of the resource – or exploitation of it – doesn’t harm the broader community or the country, or create a global impact.

 

Final Word

Common-pool resources are important. They offer a set of goods or resources that can essentially be accessed by everyone. The danger comes when such resources are overused or abused and become at least temporarily unusable or significantly less valuable to other users.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Consumption
  • Giffen Good
  • Supply and Demand
  • Veblen Goods

Financial Analyst Certification

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