My ECONS102 class covered common resources (sometimes called common pool resources) last week. Common resources are goods that are rival (one person's use reduces the amount of the good that is available for everyone else) and non-excludable (if they are available to anyone, they are available to everyone). Fish in the open ocean are one of the examples I use in class. Every time a fisherman takes a fish, there are fewer fish available for everyone else. And, it is difficult (if not impossible) to prevent fishermen from fishing in the open ocean.
Common resources lead to a problem that we call the 'tragedy of the commons', named after a 1968 article by the biologist Garrett Hardin, even though the key ideas go back to William Forster Lloyd in 1833. Lloyd's description of the problem goes something like this:
Consider a small medieval town. Many of the families in the town own flocks of sheep, and these flocks all graze on the land surrounding the town (called the Town Common). The town owns the land collectively.
As the years pass and the town’s population grows, so does the number of sheep on the Town Common. Eventually the land is grazed so heavily that it becomes barren.
The problem here is that the private incentives for each individual farmer (which are to increase the size of their flock in order to gain additional profits) are different than the social incentives for the farmers collectively (which are to manage the total size of the flock in a sustainable manner).
Most of the examples of common resources that we use in teaching relate to natural resources. However, those are not the only examples that are possible, where goods are rival and non-excludable. On the Asymmetric Information substack earlier this year, Dave Heatley provided an interesting example related to the New Zealand government's proposed water services entities:
The Water Services Entities Act 2022 created 4 water services entities (WSEs). Each WSE will be responsible for reticulated water supply, wastewater and stormwater infrastructure and services over a defined region of New Zealand.
Under the Act, mana whenua (tribal or extended family groups with authority or other customary rights or interests in an area...) may issue a Te Mana o te Wai statement for water services to the WSE (s143)...
There are many potential issuers of these statements — perhaps hundreds in North Island WSE areas. Each WSE must respond to all statements it receives, including publishing a plan of how it intends to “give effect to” the statement “to the extent that it applies to the entity’s duties, functions, and powers” (s144(2))...
The Act does not constrain the number and scope of statements. Individually, they could stretch from the small, reasonable and relatively costless; to the large, unreasonable or unworkably expensive.
The Act creates a commons, in which the capabilities, attention and assets of the WSE is the common-pool resource.
No WSE can give effect to all potential statements. Their ability to do so will be quickly exhausted. I fear they might, at best, only give full effect to the first few they receive.
The capacity of water services entities to give effect to statements is a good that is rival (one group issuing a Te Mana o te Wai statement reduces the amount of capacity for a water services entity to give effect to other statements) and non-excludable (any iwi or hapū may issue a Te Mana o te Wai statement). The capacity of the water services entities to deal with these statements could quickly be exhausted.
The 'usual' approach to solving a problem of common resources is to somehow make the good excludable. The government could grant property rights over the common resource (or keep the property rights itself). For example, the government created property rights in the form of tradeable fishing quotas to deal with the common resource problems in fisheries. However, that isn't going to work in this case, since it would involve limiting the iwi or hapū that are entitled to issue Te Mana o te Wai statements, and the legislation explicitly doesn't do this.
The other potential solution comes from the Nobel Prize winning work of Elinor Ostrom. Ostrom argued that, if enough of the affected community can work together (common governance), then the problem of common resources can be solved without government intervention. In this case, that would require iwi and hapū to work together to prevent overwhelming the water services entities. However, Heatley doesn't believe that this is feasible:
What are the chances of Ostrom-style communal management of these commons? Each claimant faces a prisoner’s dilemma... All claimants would be collectively better off if every statement was restrained, and if these statements were, in total, within the ability of the WSE to deliver. But every claimant runs the risk of another claimant lodging a statement before they do, and that such statements might be less restrained than necessary to achieve the collective optimum.
In this situation every claimant faces a very strong incentive to get in first with expansive statements. I doubt communal management can overcome this, as every potential claimant would have to trust every other potential claimant not to file a statement before collective agreement was reached. And further, each would have to believe that collective agreement was possible, given the likely quantity and diversity of claimants and statements.
Ostrom’s conditions for communal management, as summarised above, appear to be very difficult to meet in this instance.
I'm not so convinced that this problem is unsolvable with a collective approach. Ostrom's common governance solution required a few conditions, which I think can be met. First, the boundary of the resource and the group of users must be well-defined. These are clear and defined in the legislation that gives iwi and hapū the right to issue a Te Mana o te Wai statement. Second, the user community must be able to form a homogeneous group (within which trust is high), with common goals (and norms) for protecting and allocating the resource. All iwi and hapū have a common goal of protecting water quality and availability (at least, we hope that is their goal), so the common goal condition is met. Is there trust? That is something I cannot answer. There are notable conflicts between hapū (for example, see here), but there can be conflicts between people and groups that nevertheless maintain trust in each other.
The tragedy of the commons can be solved. If iwi and hapū recognise that there is the potential for a common resource problem here, then they may be able to work together to prevent it. The obvious way may be to issue joint rather than individual Te Mana o te Wai statements (which are allowed under section 143 of the Act). Or perhaps just wait and see, as National has indicated that they will repeal the Water Services Entities Act if they are elected next month.
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