“The Problem of the Commons: Still Unsettled after 100 Years” by Robert N. Stavins

From the problem of overfishing… …to climate disruption

Background and Context

Stavins is a recognized expert in environmental and natural resource economics

Stavins situates his article among others seeking to explain problems associated with “the commons”

Purpose and Method

Stavins wants to make the case for a price on carbon in dealing with climate change

Carbon tax Cap-and-

Trade

Price on carbon

EnclosureTaxes

Individual Transferable

Quotas

Market-based remedies

Renewable natural

resourcesNon-

excludability

Open Access

Stavins has multiple objectives for this article

Descriptive

• Explain the causes, or at least conditions, facing open-access natural resources

Prescriptive

• Propose the best policy fix for the “ultimate commons problem” of climate disruption

Main Conclusions

Scarcity plagues renewable resources more than non-renewable ones due to property rights regime

Renewable natural resources Non-renewable natural resources

Common Property

• Excludable

Scarcity Rent

• Reflected via price signal in the market

Increasing Stocks

• Production Ee

Open Access

• Non-excludable

Scarcity Rent

• Dissipated throughout the market

Decreasing Stocks

• Production > EMSY

Two forms of externality arise in the case of open-access natural resources

Contemporaneous Intertemporal

Maximizing net benefits of open-access resource production means scaling back to Ee

Economic efficiency: the point where net benefits are greatest, or where the difference between Total Benefits (TB) and Total Costs (TC) is greatest.

Equimarginal rule: the efficient level of production, or resource extraction, is where Marginal Benefit (MB) equals Marginal Cost (MC); where the slopes of TB and TC are the same.

(Keohane and Olmstead 2007)

Conventional market-based policies can diminish producers’ welfare more than if left unregulated

Enclosure and caps/limits Taxes

Tax set at level of rent (NB)

Rent transfer from private to public sector

Social Net Benefits, Producers’ welfareLimit set at

EMSY rather than at Ee

MCP, resource stock

Over-capitalization

Individual Transferable Quotas (ITQs) compel producers toward economically-efficient outcomes, reducing open-access externalities

Commentary & Critique

Effective explanation in terms of resource economics, but missing the social and political

Descriptive:Explanation and choice of subjects

Prescriptive:Economic efficiency ignores distributional justice