ABSTRACT
The tragedy of the commons is a frequently cited example of market failure. Each producer using the commons imposes an external cost on rivals. This externality can be both static and dynamic in nature. Static externalities reflect the traditional “crowding” problem (Brown [2]). Each firm’s current production costs rise with industry output. Costs rise because the commons input becomes relatively scarce. There is a dynamic externality if current actions lead to higher future costs. Increases in current fish harvests, for one example, generally reduce the reproduc tive capacity of the cohort and so lower the size of future populations, making it more costly to locate and harvest fish in the future. Taking petroleum production as a second example, increases in current extraction rates tend to lower pressure in a deposit, making future extraction more costly. The social harm in both of these examples is that there is overexploitation of the resource, and the stock is too rapidly diminished.
