The issue you are referring to is commonly known as the "Tragedy of
the Commons." Markets employ prices to signal the relative scarcity
of goods and services. Prices can then be used to determine what
types of economic activities occur and in what amounts. If labor is
expensive, then automation may be employed, or production may be moved
to a location with cheaper labor. In contrast, if capital is
expensive, then labor may be employed to a greater degree than capital
equipment.
Where problems occur is when a common resource is used that no one
owns, or when the owner is not interested in profiting from the
resource. The absence of an owner of oceans or the atmosphere means
that there is no one to charge a fee for their use and/or pollution.
In other cases, governments deliberately underprice resources, such as
roads and waterways, which can result in overcrowding. People often
feel free to pollute and/or overuse resources when they can do so at
no obvious cost to themselves. The marginal impact of a single
individual choosing to consume slightly more of a resource or pollute
slightly more is essentially immaterial. Unfortunately, when this is
the case, many people feel free to consume slightly more of a resource
or pollute slightly more and, and in aggregate, can create enormous
problems.
Another difficulty exists when it is impractical to measure the use of
a resource. Attaching a meter to every tailpipe to monitor emissions
continuously and sending a bill to every motorist would be extremely
expensive and cumbersome to administer. As a result, governments
often allow common property to be used free of charge or at a fixed
rate that is so low as to be ineffective in decreasing demand.
Many examples of problems exist. Overgrazing occurs when ranchers are
allowed to graze as many animals as they like on public lands.
Overfishing occurs because no one is charging for use of the oceans
and depletion of fishing stocks. Airports and highways become
congested during peak travel times because fees are not raise to
encourage people to travel at off-peak times. Manufacturers dump
pollutants into the water and air instead of paying for disposal
services that prevent their release into the environment.
All these problems are problems because they impose costs on other
members of society. These "...externalities, or external diseconomies
of production or consumption...," are detrimental to everyone.
However, the benefits to the individual creating the externality
frequently outweighs the effects of the externality on that individual
until a widespread crisis has resulted. Therefore, there is no
incentive to cease the behavior.
Some efforts are being made to overcome the lack of incentives to not
create externalities by developing pricing mechanisms for common
resources. For example, exchanges have been developed for sulfur
emissions to control acid rain, and carbon exchanges have been
proposed to address this potential source of global warming.
"Regulation of air and water pollution has limited the right of firms
to dump wastes. The Law of the See Convention allows nations to
regulate ocean resources as far as 200 miles from their shores. While
not perfect mechanisms for charging the appropriate scarcity rents,
these devices help to reduce the worst abuses of the commons."
I hope this information is useful to you in constructing your essay.
I encourage you to consult "Economics" 14th edition by Samuelson &
Nordhaus, McGraw-Hill Inc. (1992) pages 268-269 for additional
information on the subject.
Sincerely,
Wonko |
