Wednesday, February 25, 2009

"Tragedy of the Commons" or Market Failure?

This post relates to the following Keystone Economic Principles:
4. Economic systems influence choices.
5. Incentives produce “predictable” responses.

On Monday evening, I spent a little time discussing the "tragedy of the commons" with my class. We've also spent time some time talking about proper pricing in the market place. My question for them, and one that you can pose to your students, is "Does this story represent a simple market failure due to improper pricing, or is it an example of the tragedy of the commons - property owned by everyone is generally taken care of by no one?

You can make prima facie cases both ways. It's a market pricing failure because the property is owned by a private firm. The use was just not properly priced. It's a commons issue because the price was subsidized by the government (owned by everyone), and there was no subsequent incentive for proper use.

I know what my thoughts are. Please share your thoughts and those of your students. I will do likewise once I've gotten their responses.

There's a free lesson plan and another story related to this one on today's Izzit.

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