Controlling earth's resources: Markets or socialism?

"If we are to correct the consequences of the world's actions, we must understand the machinery that accounts for these consequences" (Hardin (1978a, p. 310).

Abstract

The important message contained in Garrett Hardin's seminalScience article, "The Tragedy of the Commons," is that in making resource-use decisions individuals see their own narrow interests best and, if not constrained by institutions such as governmental rule or market incentives, will tend to follow those narrow interests. Individuals do not automatically seek to use resources in the long-run best interests of society. This fact of life leads to abuse of resources to which access is not controlled.

In this paper, the same insight is applied to the two types of control mechanism cited by Hardin: socialist management and private ownership. Much has been written in the economics literature, especially since "Tragedy" was published, which bears on any comparative analysis of the two systems. Some of these insights are reported here.

Recognizing that narrow interests dominate resource decisions in both the private and public arena is fundamental to the problem of insuring that resource decisions are made with proper weights given to all gains and sacrifices made. Considering the incentive and information effects of property rights ownership reveals some serious omissions in Hardin's description—which draws from and parallels descriptions by many other commentators—of how markets function when private property rights are present. Most importantly, owners' incentives to weigh future values, and the social role played by interest rate calculations in business, require a better understanding.

To understand alternative institutions, and to "get it right" in choosing among them, has enormous implications for responsible use of natural resources. The institutional arrangements we choose will strongly influence the carrying capacity of pastures—and indeed of our planet.