Wed, 27 Jul 2005

Competition as a commons

Hopefully everyone is familiar with the Tragedy of the Commons. In a sentence, the tragedy works like this: if you have a depletable resource in demand, and no person or institution can control its use, it will be entirely consumed. This principle applies to many things beyond the village grazing commons from which it was originally derived. Fish, clean water, clean air, and park benches suitable for homeless to sleep are all subject to the tragedy. A characteristic of a commons being depleted is an overinvestment in extractive resources, e.g. fishing boats.

The tragedy can also be applied to bad commons. That is, resources with a negative value, e.g. ignorance, greed, or excess profit margins. Just as we need to be careful to set property rights so that there are no unmanaged positive commons, we also need to make sure not to set property rights in such a way that we eliminate negative commons.

For example, the (typically) Nigerian 419 scammer relies on people's ignorance. In this scam, the scammer claims to have control over millions of dollars which they cannot receive themselves. Instead, they offer the victim a percentage in return for making the exchange seem to be an honest business deal. Once the victim realizes that it is a scam, no other version of the same scam will work. The ignorance is depleted. And gauging from the feverish activity of 419 spammers sending me offers, they are overinvesting in their scam.

Or for another example, free markets create a commons out of high profits. If someone invents a new way to make money (and no patent applies), anyone is free to enter the market and deplete the high profits. The purpose of the patent system is to create a manager for this commons.

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