Siddharth Varadarajan

Nobel economics has relevance to climate change

One of the winners of the Nobel prize for economics this year, Elinor Olstrom, is a pioneer in the study of the economics of the ‘commons’ — common property resources which, by virtue of being available to everyone free of cost, tend to be over-exploited.

Given the focus of neoclassical economics on the optimal allocation of scarce resources, it is perhaps not surprising that the commons became a distinct field of study within the academic discipline only in the late 1960s, following Garret Hardin’s seminal 1968 article in Science, ‘The Tragedy of the Commons’.

Hardin argued that freedom in a commons brings ruin to all, whether one is speaking of simple herdsmen grazing cattle on a meadow or factories emitting effluents or smoke into a river or the skies. “The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them,” he wrote. “Since this is true for everyone, we are locked into a system of ‘fouling our own nest,’ so long as we behave only as independent, rational, free enterprisers.”

Economists and governments were quick to seize on the implications of this tragedy; devising rules and institutions to limit the overconsumption of common resources became something of a cottage industry. Some argued in favour of privatisation, others nationalisation or the use of taxation. But most academic approaches to the commons dealt with the problem as a local one with a limited number of players.

Prof. Olstrom was perhaps the first economist to seek to harmonise this field of study and to emphasise that there was no “single, best way” of preventing the inevitability of the ‘tragedy’. While compact communities and states have had reasonable success in finding solutions within their jurisdiction, the international community is not very well-equipped to deal with its single biggest resource problem today: the future of our atmospheric commons.

As Prof. Olstrom put it in a 2008 article, because emitters have every incentive to use as much of the atmospheric commons as a repository for the wastes associated with burning fossil fuels as possible since the immediate cost to them of this factor of production is zero.

“But the present and future costs to society of this practice are enormous. Estimates of these costs vary. But there is compelling evidence that the eventual costs will exceed the cost of changing our current practices to limit emissions of greenhouse gases by a large margin.”

With a national regulator, it is not difficult to devise rules of the road to deal with this problem, or even to enforce the ‘national’ share of an internationally agreed solution as conceived by the UN Framework Convention on Climate Change. But in a world marked by the unequal distribution of power, reaching an agreement internationally is proving difficult. “One of the problems we face when we move up to the global level is that unanimity is required for most international treaties,” Prof. Olstrom wrote in a 2002 journal article. “While we have all sorts of chances to learn from experiments in local commons, we have only one globe and the risks of experimentation are much greater.” In sum, she concluded rather pessimistically, “we do not have clear predictions for beating the tragedy of the commons at a global level.”

“The bad news,” she wrote, “is that when users cannot communicate, don’t have trust, can’t build it, and don’t have rules, we have to expect the tragedy of the commons to occur.” This is the fate which awaits the world if the forthcoming U.N. conference on climate change in Copenhagen ends without the world’s major emitters of greenhouse gases agreeing to significant cuts in their emissions.

But if diplomats can engage in direct discussion and — crucially, have the autonomy to change some of their own national rules — “they may be able to organise and overcome the tragedy,” Prof. Olstrom concluded.

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Printable version | Jul 24, 2021 7:34:11 PM |

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