Tragedy of the Commons, Externalites, and Fundamental Game Theory

[Yarn]

Imagine that you are playing a game. In this game you make only one choice of consequence: alpha or beta. You are paired with a random person whom you have never met. They must also choose: alpha or beta.

If you both choose alpha, you each get a 1 out of 3. If you both choose beta, you each get a 2 out of 3. If you choose alpha, and the other person chooses beta, you get a 3. But if you choose beta and the other person chooses alpha, you get nothing.


The question of which to choose has been asked of audience all over the world. The predominant answer is alpha, and after playing the game once, the answer alpha is nearly universal. So everyone gets 1. But they could have all gotten 2. The only reason why they do not all get 2 is because that requires trust. If you shoot for a 2 and your partner betrays you, you get a 3. So everyone does worse off than they should because they can't trust eachother.

This results from what in economics would be called an externality. An action you take has an external cost and/or benefit for which you are not rewarded or punished.

The tragedy of the commons has its origin in peasant times, when there were specific grazing areas cordoned off for public use. But the commons were exhausted as the peasants raced to make as much use of the land as possible before it became barren from overuse. An individual virtuous peasant could of course abstain from this race so as to try to protect the land for future years and generations, but this would be futile because if he didn't profit by ruining it, then someone else would.

This is, among other very important reasons, why communism fails where capitalism generally succeeds. In communism, your impact on your own wealth is negligible because it all goes into the common pool. Likewise, if you are lazy or corrupt, then the costs of this reduce the common pool and have only a negligible effect on your own fortunes. However, because everyone else makes the same determination, everyone is worse off.

Private property solved this problem by introducing rules. In order to use land, you have to own land, and so if you ruin land, it is your own land that is ruined. Private property can promote work ethic in general by similar principle across many forms of property.

Social programs are a form of commons that introduce a danger in that like communism and common pasture land, they can result in ruinous abuse.

However, commons are not completely eradicable. We share a common market. Our land is contiguous. Our oceans are, for the most part, owned by no one. Nor is our atmosphere. Nor are many other commonalities.

The second solution to the tragedy of the commons is common rules. Functionally, per instance, fisheries are quite similar to common pasture land. In most of the world's seas, fish are being rapidly overfished such that in years to come fish will continue to become and more expensive as a result of fewer and fewer fish remaining in our oceans.



In some areas, caps have been put on how many fish can be extracted per season, and these locales have succeeded in stabilizing their fish supply.

Likewise, reluctantly, Clinton signed a welfare reform bill sponsored by Republicans that established rules for the commons to reduce abuse:

It started the Temporary Assistance to Needy Families program, which placed time limits on welfare assistance and replaced the longstanding Aid to Families with Dependent Children program. Other changes to the welfare system included stricter conditions for food stamps eligibility, reductions in immigrant welfare assistance, and recipient work requirements.[12]

Personal Responsibility and Work Opportunity Act - Wikipedia, the free encyclopedia

Contracts are also a form of common rules. If player 1 and 2 can sign a contract to choose beta, and if infringement of this contract results in punishment, the incentive will be for both players to choose beta because due to the contract they can trust eachother.

So the solution to the tragedy of the common is not either common rules or privatization. It is both. In some cases, per instance, communism, common rules proved unworkable. Stalin literally worked his people death, yet the USSR was never competitive with the West economically. Likewise, privatization cannot work with everything because not everything can be privatized (or made common for that matter).

This OP was mostly about trying to produce a framework by which to judge more specific topics. Is it a good one?

[sulh-i-kul]

No answers?
Well, I bet you're not going to like mine: you're projecting institutions and rationalities (either imaginary ones or those prevalent where you live) on historical or hypothetical situations in which they didn't or couldn't previal. The result is fantasy economics and, with the help of an ignorance of the relevant facts, fantasy politics and fantasy history as well.

This is the neo-liberal equivalent to the creation of the world in seven days for instance:

The tragedy of the commons has its origin in peasant times, when there were specific grazing areas cordoned off for public use. But the commons were exhausted as the peasants raced to make as much use of the land as possible before it became barren from overuse. An individual virtuous peasant could of course abstain from this race so as to try to protect the land for future years and generations, but this would be futile because if he didn't profit by ruining it, then someone else would.

Old economics textbooks had a lot of this stuff to explain basic realities like money. Faced with the historical and anthropological evidence, the better ones should have tuned the fantasy down by now.

You don't understand the USSR. Its economic performance was actually pretty awesome when it had a direction as evidenced during WWII.
Enough honest people were motivated to work hard. The trouble was, working hard for what goals? Building ridiculous amount of a single well-designed product isn't very difficult with abundant resources and engineers in charge. Copying large projects which have been successful abroad is likewise not so challenging for a strong government but central planning of a whole economy is a very difficult task indeed, one for which the Bolsheviks were woefully unprepared.
And when corruption is the main way to get rational decisions approved by delusional bosses in a timely manner, honest people will turn to corruption.

[Yarn]

The Soviet military was extremely inefficient. The ratio in WW2 was that in battle 4 Soviet soldiers were worth about 1 German.

Also, throughout the Cold War the Soviet military took up a much greater percentage of GDP than did that of America.