The tragedy
of the
commons
Traffic jams and road congestion
are problems we all encounter.
For economists, road congestion
is an example of the ‘tragedy of
the commons’. Maksymilian
Kwiek explains why
R
oad congestion is one of the most
irritating aspects of modern life.
Being stuck in traffic and arriving late to
an important meeting can be both infuriating and depressing. This suffering is hard to
measure, but there are more tangible costs,
such as lost petrol, pollution and — above
all — lost time and missed deadlines for millions of people.
Congestion, as a general problem, does
not apply only to road usage, but it is certainly experienced first hand by pretty
much all citizens. Let us use this example
to explain the general problem of the socalled congestible public good, where the
phenomenon known as the tragedy of the
commons is endemic. Let us also examine
the proposals often suggested by economists to ease the inefficiencies associated
with traffic jams.
Road congestion
Photodisc
Classification of goods
16
When an economist says that a road is a
public good, he or she does not mean that
the road is public. It often is, but that is not
what is meant. This statement is about a
characteristic of a good, not about its legal
ownership. Goods have various properties
and the aim of this discussion is to show
that these properties are crucial to the way
goods are allocated in societies.
An apple is a private good because one
person eating it automatically prevents
other people from using it. This property
is called rivalry, since two consumers are
rivals in consumption. National defence,
on the other hand, is a completely different kind of good. If one person enjoys
security provided by national defence,
this does not make ‘less’ national defence
available to other consumers. A public
good is a good that does not exhibit rivalry
in consumption.
Rivalry is obviously not black and white:
there are various shades of grey. Goods are
partially rival, or congestible, when consumption by one person reduces, but does
not eliminate, the benefit that this good
brings to other consumers. A heavily used
Economic Review
Corbis/Cadmium/ImageDJ
Apples are private goods, whereas national defence is public
road is a good example — it is a public
good because putting one more car on this
road does not prevent other drivers from
using it, but it is congestible because such
an addition slows everyone else down.
Excludability
Apples, roads and national defence are
goods that differ in the level of rivalry, but
that is not the only important difference. An
owner of an apple can easily exclude others
from consuming it. With national defence
or police-provided security, it is a different
matter. Whoever pays for security cannot
simply exclude their neighbours from
enjoying a safe public space. Neighbours
benefit from increased security merely by
living in the area. How easy it is to exclude
others from consuming a good or service
is called excludability. Apples are excludable, national defence is not.
Although these remarks are mostly about
the intrinsic nature of a good or service, it
may be possible to modify the degree to
which a good is excludable. Sometimes
simple physical modifications are possible,
such as putting a fence around a park, or
a toll booth at the entrance to a bridge, to
make them excludable. Legal changes can
also be introduced. For instance, everyone
could hunt in Sherwood Forest in ancient
times, meaning that game animals were
non-excludable. By the time of Robin Hood,
however, hunting for some animals was
only allowed by royal licence. The change
in the law, followed by strong enforcement,
made game animals excludable.
This leads us to a question: what legal
framework should be used to regulate
April 2011
production and allocation of congestible
public goods, such as roads?
These are, in fact, two separate questions:
l the first one is who should produce and
supply the good (the production issue)
l the second one is who should get to
consume it and how much (the allocation
issue)
The focus of this article is on the second
question: we will just assume that roads
are already in place.
Tragedy of the commons
Should an administration restrict the
availability of existing roads? Should
kings control hunting in Sherwood Forest?
Should new laws make it easier to exclude
consumers from using congestible public
goods? The answer for pure (non-congestible) public goods is no. Once the good is
provided, say through general taxation, it
does not make any sense to restrict access
to it.
The following simple example will show
that the answer for a congestible public
good is yes.
Every day, eight inhabitants of a suburban town may use a stretch of a road to
commute to a nearby city. Drivers value
the car trip differently. Let us arrange them
in order of their valuations so that the first
one has the highest valuation, 16, the next
has 15 and so on. These valuations are
presented in the second column of Table 1.
The more cars there are on the motorway, the greater is the cost of delay incurred
by each of them. In particular, assume that
each other car on the road costs a given
driver £2. This is shown in the third column
of Table 1.
These numerical values do not have to
be realistic as they are just for illustration.
We assume, however, that they represent
all individual costs and benefits. Likewise,
we assume that there are no other costs,
such as pollution or noise. This assumption, again, is not because it is realistic
— it is not — but because we do not want
to confuse our examination of congestion
costs with other issues.
Individual and total social benefit
We are now going to calculate the individual benefit and the total social benefit as
the number of drivers increases. Suppose,
for example, that the number of drivers
is three. Then the individual net benefit
of the third driver is £10 (£14 – £4). The
total social benefit, however, is equal to
total benefit (£16 + £15 + £14) = £45,
minus the cost of congestion of £4 per each
of three drivers. The result is £33.
Table 1 Individual benefits and total welfare
Individual incentives and
total welfare
Assumptions
Number
of
drivers
Individual
valuation of the
marginal driver
1
16
2
15
3
14
Individual net
benefit of the
marginal driver
Total
welfare
Individual
incentives
with price
£6
0
16
16
10
–2
13
27
7
–4
10
33
4
Congestion
cost per
driver
4
13
–6
7
34
1
5
12
–8
4
30
–2
6
11
–10
1
21
–5
7
10
–12
–2
7
–8
8
9
–14
–5
–12
–11
17
Ingram
If such an improvement can be designed
then it probably should, and the original
situation should be declared undesirable.
Economists call this situation Pareto
inefficient. In our example, the only
efficient outcome involves four drivers.
We can see that there is a wide difference
between equilibrium and a socially efficient
outcome. An unregulated market leads to a
result that is radically inferior in relation to
the social optimum. Why is that?
Congestion in Athens became so bad that pollution from traffic caused damage to the city’s
historic buildings
Total welfare
The calculation of the total welfare,
however, is completely different. The total
welfare is highest (£34) when there are
only four drivers on the road.
Someone might object to the idea that
the maximisation of the sum of drivers’
benefits is the right criterion leading to the
most ‘desirable’ outcome. Maybe maximisation of the number of commuters is the
right criterion. After all, if we ask any of
the first six drivers to leave their cars at
home (without any compensation), we will
make them less happy, and that certainly is
not good.
The critical fact, though, is that it is
inexpensive to convince the sixth driver to
leave his or her car at home. One needs to
pay them a compensation of only £1 plus a
penny to achieve this. On the other hand,
the reduction in congestion costs for the
18
remaining five drivers is such that each of
them is willing to pay up to £2 for that. In
principle, one can imagine a compensation
scheme that would ask these five drivers to
collect a little ‘bribe’ in order to persuade
the sixth driver to leave the car at home. It
may be difficult to organise this in practice,
but at the conceptual level it is possible.
Ingram
If anyone can use the road at will, then
six individuals will drive. The reason is
simple: if there are fewer drivers, say five,
then the next potential new driver, who
contemplates becoming a sixth person
commuting by car and whose valuation is
£11, would notice that the congestion cost
is £10, resulting in the net benefit equal to
£1, which is strictly positive. So, he or she
should join. On the other hand, if there are
six drivers already, the seventh driver raises
the congestion costs to £12, which exceeds
his or her valuation of £10. To avoid this
loss, this driver should not join those initial
six drivers.
Conclusion
Individuals, when deciding whether to take
their car or leave it at home, compare their
own individual benefits with the individual
costs of these actions. No matter how big
the individual cost of driving is (of time,
but also of petrol, car depreciation etc.),
it does not include the cost incurred on
others, such as congestion. An action will
obviously look more attractive if one does
not have to take all its costs into account.
As a result, unrestricted use of a congestible public good will lead to overuse.
This conclusion is general, despite the
fact that it was obtained in the context of
a simple example. This is an illustration
of the phenomenon called the ‘tragedy of
the commons’. It is prevalent not only in
Should access to fisheries be restricted?
Economic Review
ImageDJ
The London congestion charge is a crude attempt to resolve the tragedy of the commons in the capital
the case of heavily used roads, but in all
instances of congestible public goods with
free access, such as fisheries, pastures,
forests etc. Sometimes even goods or services that are excludable in principle obtain
properties of a congestible public good
with free access, by specific regulation.
Two examples of this are access to hospital
A&E departments and access to free higher
education.
Remedies
Authorities have been trying to alleviate
the inefficiencies inherent in congested
roads for a long time. Congestion is a form
of ad hoc rationing and the most obvious
remedies involve some version of administrative rationing.
Restricting access
Many cities restrict access of cars based on
their registration number. In Athens, cars
whose number plate’s last digit is even
can enter the city centre only on even
days, and cars whose plate ends in an odd
number can enter only on odd days. This
method does decrease costs associated
with congestion, but it suffers from many
other problems:
April 2011
l
It does not account for individual differences. Someone may desperately need
to drive to the city on a particular day, for
example, but may not have the right to do
so, while their neighbour drives to the city
on the same day for no particular reason.
There is, however, no formal way for the
neighbour to give up his or her spot on the
road — other than lending their car.
l The system is inflexible. It might still
be difficult to eliminate congestion, even
with only half of all the cars in Athens.
Conversely, half of all the cars may not be
enough to fill up all the empty road space,
and the roads will thus be unused.
Demanding payment for access
Another method involves some form of
payment for access. If the source of inefficiency is the fact that individuals do not
bear all the costs that they generate, these
congestion costs can just be included in the
price of driving. This motivation is different from the one behind various toll roads
or toll bridges. The purpose is not to pay
for the construction or improvement to
this infrastructure, but rather to manage
the intensity of traffic to maximise its
social value.
It is often argued that road users already
pay too much. They pay vehicle tax and
fuel duty. The total amount paid to the
government in this way is greater than all
the expenditure on maintaining roads. The
crux is, however, to emphasise how the
money is paid, not necessarily how much.
Let us illustrate this in the context of our
numerical example.
Suppose that there are two proposals.
Proposal 1 is to pay a fee exactly equal
to the congestion cost incurred on other
drivers. With four drivers in the efficient
outcome, this is £6. The last column of the
table shows the individual incentives of
each driver, if we subtract a fee of £6 for
using the road in addition to all the previous benefits and costs. As a result, only four
drivers would stay on the roads, which is
exactly the efficient result that we wanted.
The government revenue is £24.
Proposal 2 is for each of eight car owners
to pay a car tax of £3, so that the total
revenue is no different from in Proposal 1,
equal to £24. It turns out that this proposal
does not change the driving patterns at all,
in comparison to the pre-regulation circumstances. The tax is paid regardless of
whether the car is used to drive into the city
19
Review notes
1 A public good is a good that does not
exhibit rivalry in consumption and is nonexcludable. Some public goods, however,
are partially rival, or congestible, i.e.
consumption by one person reduces —
but does not eliminate — the benefit that
this good brings to other consumers.
2 When individuals use public goods and
this leads to congestion or depletion of
that (congestible) good, this is referred
to as the ‘tragedy of the commons’. Free
access to a public good allows individuals
to maximise their use of that good and will
lead to its overuse. Thus the costs for the
individual are less than the social costs
borne by the society in terms of congestion or depletion of this resource.
3 Road congestion is a classic example of a
congestible public good. Drivers impose
a cost on others that is greater than their
individual cost.
4 One suggestion to deal with this inef-
ficiency is to restrict access. Another
potential remedy is to charge for usage.
It is clear that government intervention is
needed to deal with the tragedy of the
commons, though both suggested remedies may have drawbacks.
or stays at home. Individual valuations in
car usage therefore stay the same. It is true
that this proposal may create incentives to
get rid of some of the marginal cars, but it
certainly does not create incentives to stop
driving during rush hours.
In practice
The London congestion charge, introduced
in 2003, is a classic example. It is a daily
fee of £10 (from January 2011), payable
by drivers using public roads in the central
area of London on weekdays between
7 a.m. and 6 p.m. Drivers may pay online,
by phone or in local shops any time on the
day of travel, a day before or a day after.
The system of cameras checks number
plates of cars in the zone and automatically
compares them with the database of
payments. Penalty charges are sent to
owners of any cars that are detected in the
zone without a matching payment.
As a result of the introduction of this
system, the overall congestion in central
London, defined as the delay relative to
uncongested conditions, went down by
about 30%. Bus reliability increased significantly, leading to an increase of patronage by 37% in just the first year. The safety
of using bicycles and the number of trips
by bicycle increased, and car pollution
decreased. Although the system was controversial before it was launched, since
then it has been praised as a success.
Yet the system is rather crude. For
example, someone who has to drive to
London during the day must pay the same
fee, regardless of when or where he or she
is driving. Again, there are no incentives to
avoid particularly congested times, such as
the morning rush hour.
The new technology, however, promises
an enormous step forward from these preliminary attempts. Even today technology
exists that makes it possible to identify the
exact position of a car via GPS hardware,
download all the relevant road information
via the 3G network and upload all the
details about the traffic, car’s position and
time. That means that we can start thinking
about how to organise a system of road
fees that depends on the time of day, location and many other things. £
Maksymilian Kwiek is a lecturer in
economics at the University of Southampton
and is a member of the editorial board of
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