Theory of Commons - Combes Et Al

A review of the economic theory of the commons
Jean-Louis Combes, Pascale Combes-Motel, Sonia Schwartz

In Revue d’économie du développement Volume 24, Issue 3-4, 2016, pages 55
to 83
ISSN 1245-4060
ISBN 9782807390201
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Jean-Louis Combes, Pascale Combes-Motel, Sonia Schwartz, «Un survol de la théorie des biens communs», Revue d’économie du
développement 2016/3 (Vol. 24) , p. 55-83
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A Review of the Economic Theory
of the Commons
Jean-Louis Combes*
Pascale Combes Motel*
Sonia Schwartz*
This article proposes a review of the economic theory of common goods. The conditions in which
the “Tragedy of the Commons” prevails are examined. Several examples of this tragedy, such
as climate change, deforestation, urban congestion and the fiscal deficit are scrutinized. In each
case, public policies are considered more often than institutional agreements between stakehold-
ers or market approaches.

Keywords: Common goods, Climate change, Deforestation, Urban congestion,
Fiscal deficit.
JEL Codes: Q54, Q58, R41, R48, Q23, Q28, H63, H77.
*
Clermont Auvergne University, CNRS, Cerdi, F-63000 Clermont-Ferrand. Emails:
j-louis.combes@uca.fr; pascale.motel_combes@uca.fr; sonia.schwartz@uca.fr.
51
52 Jean-Louis Combes, Pascale Combes Motel, Sonia Schwartz
1 INTRODUCTION
In economics, goods which are non-excludable but rivalrous are called com-
mon goods. Often used by a community of users, these goods are apparently
doomed to be over-exploited (Hardin, 1968). Game theory can be used to con-
ceptualize this issue. Depending on the problem considered, cooperation can
emerge spontaneously and thus prevent their “tragedy”. Ostrom’s works also
show that institutional agreements between users can lead to rational man-
agement of the resource. When this is not the case, state or market-based
solutions can be adopted.
In this article, the common good concept is analysed based on four case
studies: climate change, deforestation, urban congestion and the fiscal deficit.
Depending on the study perspective, the issues can be similar or not. These
four examples can be considered as negative externalities and therefore cor-
respond to market failings. For example, there is no price for air pollution,
for road use and for the use of public funds, and timber prices are underesti-
mated by markets. While the combat against climate change is a global public
good, the improvement of urban mobility is rather a local public good and
healthy public finances a transnational public good, whereas depending on
the role assigned to the forest (a guarantor of biodiversity, a carbon sink or
an environmental service provider), all forms of public good can be attributed

to it. Finally, while the field of study for climate change is similar to that for
deforestation, that for urban congestion is rather different, and for the fiscal
deficit even more so. The aim therefore, in light of these various examples, is
to analyse how to prevent the tragedy of the commons. We consider the solu-
tion adopted in each case (market mechanisms, state policies or agreements
of an institutional type) and we raise questions concerning their effectiveness.
The article is organized as follows. Section 2 gives a brief outline of the
theory of common goods. Section 3 describes the issue of climate change,
Section 4 the issue of deforestation, Section 5 the issue of urban congestion, and
Section 6 discusses the fiscal deficit. Section 7 will present some conclusions.
2 THE THEORY OF COMMON GOODS
Here we start from the definition of a common good in accordance with

Samuelson’s classification (Samuelson, 1954) which is the basis for Ostrom’s
work on common resources (CPR, or “common pool resources”). 1 According
1
“CPRs include natural and human constructed resources in which (i) exclusion
of beneficiaries through physical and institutional means is especially costly, and
A Review of the Economic Theory of the Commons 53
to Hardin, non-excludability and rivalry in consumption are the cause of the

tragedy of the commons.
2.1 From the notion of common good…

The classification of goods in economics is based on the notion of rivalry in
consumption and excludability. Common goods correspond to resources shared
by a community of users. Two types of negative externalities may be gener-
ated by management of the common resource (Ostrom et al., 1994). The first
concerns the appropriation of the flows derived from this resource. A lack of
cooperation between users could lead to its over-exploitation. This is because
each of the users profits fully from the quantity of the resource extracted, but
incurs only part of the cost of extraction. The classic example is that described
by Gordon (1954) relating to a homogeneous population of fishermen, charac-
terized by an excessive number of fishing vessels. The second externality con-
cerns the production of the common good, i.e. management of the stock of the
resource. While each user contributes to the supply of the resource, e.g. the
maintenance of irrigation canals, surveillance to prevent trespassing or the
use of large-mesh nets in fisheries, they only derive a partial benefit from it.
Non-excludability can be rational from an economic viewpoint. For exam-

ple, it may be the consequence of exploiting economies of scale in maintenance
of the common resource (Baland and Platteau, 1997), or be due to the fact that
no exclusion technologies are available at a reasonable cost. Moreover, in an
environment characterized by imperfect financial and insurance markets, the
existence of the common good also complies with considerations of fairness,
because it can operate as a safety net and/or provide goods and services ben-
efiting, in particular, the poorest people who are more dependent on common
resources (Dasgupta, 2005).
We should not confuse the definition of the common good or the common
resource with a property regime. In other words, a common good does not
necessarily imply common property. According to Ciriacy-Wantrup and Bishop
(1975) a “common good is not the property of everyone”. The concept implies
(ii) exploitation by one user reduces resource availability for others. These two
characteristics—difficulty of exclusion and sub-tractability—create potential CPR
dilemmas in which people following their own short-term interests produce out-
comes that are not in anyone’s long-term interest. When resource users interact
without the benefit of effective rules limiting access and defining rights and du-
ties, substantial free-riding in two forms is likely: overuse without concern for the
negative effects on others, and a lack of contributed resources for maintaining and
improving the CPR itself.” (Ostrom et al., 1999).
merely that the potential users of the resources who are not members of the
group are excluded. It should therefore not be confused with the concept of
free access (res nullius) in which the only way of influencing control of the re-
source is to take it before other economic agents do so. Hardin’s contribution
(1968) is precisely to describe how several individuals from a given community
of users come to over-exploit or under-produce the common good.
2.2 …To the tragedy of the commons

The image used by Hardin is that of a pasture open to all. 2 One of the stand-
ard ways of expressing the tragedy of the commons is to use the prisoner’s
dilemma game, which is a non-zero-sum game. It takes the form of a non-
cooperative game, i.e. with no possibility of communication between players/
stockbreeders. It is assumed that information is perfect, i.e. that the players
are capable of assessing the consequences of their behaviour but that they
also know the consequences of the other agents’ actions. Let us assume that
the maximum stocking capacity of this pasture corresponds to the number of
animals in sound condition of fattening at the end of the season, and there-
fore able to be sold. Let H be this maximum number of animals and let us
consider a game with two players. A stockbreeder can adopt two types of be-
haviour. Option A corresponds to the choice of cooperation. In this case, he

takes to pasture a number equal to H/2 animals. Option B corresponds to non-
cooperation. Given his costs, he therefore tries to place a maximum of animals
on the pasture, a number exceeding H/2. When the game is solved, it turns out
that non-cooperation is a dominant strategy for each of the players. As a con-
sequence, the Nash equilibrium is a dominant strategy equilibrium (B, B) but
is not Pareto-optimal resulting from cooperation between the players. Indeed,
if each player had chosen the cooperative strategy, the gains would have been
greater than those obtained in the Nash equilibrium.
The prisoner’s dilemma underlines the difficulty of achieving the common
interest based solely on the pursuit of personal interest. To complete the role
played by the parable of the tragedy of the commons, we can mention the work
by Olson endeavouring to explain the rationality of collective action (Olson,
1971). The author poses the question as to why rational individuals undertake
collective actions and do not merely perform purely private actions or express
2
Hardin is not the first to describe the phenomenon. For example, Aristotle noted
that: “What is common to the greatest number is cared for less attentively. Man
takes greatest care of what belongs to him, and tends to neglect what is common.”
(Politics, Book III, Chapter 3).
themselves by voting. There is an apparently simple answer: individuals unite

in groups to defend their common interests. A group produces a collective
service which benefits the whole group. However, using the economic rational-
ity hypothesis, this answer is inconceivable. This is because individuals have
an interest in certain collective services being produced, but it is in nobody’s
interest to incur their cost. Once produced, the collective services benefit eve-
ryone, including those who do not contribute to their financing. This is the
free-rider phenomenon, and its probability of occurrence may be greater in
large groups (Ostrom, 1990, p. 6). Therefore, the existence of a common inter-
est is not a sufficient condition for collective action. 3
2.3 Is the tragedy of the commons inevitable?

The theoretical foundations of the tragedy of the commons have been criti-
cized. For example, some natural resources are managed collectively without
necessarily resulting in their over-exploitation (e.g., Rasmussen and Meinzen-
Dick, 1995). Furthermore, the payoffs achieved in “cooperation” strategies
are often more favourable than those usually presented in prisoner’s dilem-
mas (Bardhan, 1989, 2000). This idea is represented in game theory in the
form of the chicken game, the stag hunt and the iterated prisoner’s dilemma.
Moreover, Ostrom’s work popularized an alternative view of management of

the commons, without necessarily speaking of a “tragedy”.
2.3.1 The “chicken game” or cooperation at any price
The chicken game is a variant of the prisoner’s dilemma. However, while it is

still advantageous to betray when the other player cooperates, it is now advan-
tageous to cooperate if the other player betrays. Each player wants to avoid
the non-cooperation strategy. There is no longer a dominant strategy and the
outcome of the game achieves two Nash equilibria (A, B). When the natural
resource is vital for individuals, a non-cooperative attitude (B, B) would have
disastrous consequences. Accordingly, individuals endeavour to avoid it and
prefer to choose the strategy of cooperation, even if the others choose not to
cooperate, hence the “chicken” concept.
This type of behaviour can be observed in situations where an individual
chooses to provide the resource themselves, by cleaning irrigation canals or
performing surveillance of fishing grounds. Each individual can maintain the
3
See also Ostrom and Ahn (2007) on the various generations of collective action
models.
irrigation system themselves, but everyone can benefit from it. If a farmer
does not perform his share of the work, it is in the interest of the other farmer
to perform maintenance in order to be able to keep on using the irrigation
network.
2.3.2 The stag hunt game
There are circumstances in which an individual cannot do all the work of sup-
plying or maintaining the common good. Cooperation can therefore emerge,
as described by the stag hunt game, inspired by the famous Discourse by
Rousseau (1755). In this type of game, there is no dominant strategy but two
Nash equilibria (A, A) and (B, B) in pure strategy. This type of situation oc-
curs when the decision to provide a public good results from the combination
of individual choices. This is the case when an infrastructure has to be set
up to exploit a natural resource, e.g. the construction of a dyke or a bridge.
It is therefore in the player’s interest to contribute to the collective effort to
provide the public good if the other players agree to make the same effort. On
the other hand, it is not rational to contribute to the effort alone. The players
therefore have an incentive to coordinate their expectations in order to reach
the cooperative equilibrium corresponding to the Pareto optimum.

2.3.3 The iterated prisoner’s dilemma or how cooperation
can emerge spontaneously
The preceding examples are static games, in which the decision is taken once
and for all. Time can be introduced into the prisoner’s dilemma game by high-
lighting “tit-for-tat” strategies. For example, Axelrod and Hamilton (1981)
endeavour to understand why cooperation can emerge in a world formed of
egoistic individuals and without a regulator. The authors dynamically analyse
a prisoner’s dilemma game when the number of repetitions of the game is
unknown to the players. In this case, those individuals who do not cooperate
eventually lose and those who cooperate ultimately win. In other words, the
“rationally altruistic” individuals are rewarded. The cooperative equilibrium
emerges when the future payoffs from the cooperation strategy are little im-
paired and the payoffs related to a non-cooperative attitude are not too great.
2.4 Ostrom’s work

While the tragedy of the commons appears plausible in some situations, it
does not apply to all natural resources having the characteristics of common
goods. Works have illustrated rules established by societies for management

of a common resource. According to Ostrom (1990), political implications are
drawn too quickly from the tragedy of the commons in the form of centrally
controlled regulation or privatization. For example, the parable of the tragedy
of the commons seems very appropriate for describing situations shared by
a large number of users in which coordination defects are potentially signifi-
cant. On the other hand, it does not seem appropriate to refer to the tragedy
of the commons when a resource is shared among a limited number of people.
Accordingly, the state or the market are not always the solution for preventing
the tragedy of the commons, and the institutional agreements between users
which allow efficient exploitation of the resource are never either completely
public or completely private (Ostrom, 2002).
Following numerous studies, Ostrom establishes eight principles to be
complied with by common goods to allow their protection by communities
of actors (Adams et al., 2001): (1) Define clear group boundaries; (2) Match
rules governing use of common goods to local needs and conditions;
(3) Ensure that those affected by the rules can participate in modifying the
rules; (4) Develop a system, carried out by community members, for moni-
toring members’ behaviour; (5) Use graduated sanctions for rule violators;
(6) Provide accessible, low-cost means for dispute resolution; (7) Make sure
the rule-making rights of community members are respected by outside au-

thorities (governments), thereby guaranteeing the principle of subsidiarity;
(8) Build responsibility for governing the common resource in nested tiers
from the lowest level up to the entire interconnected system. However, these
are general principles which do not eliminate the need for analysis on a case-
by-case basis.
Field work has reported a great variety of experiments by informal lo-
cal organizations, on rules and mechanisms to implement the management
of common resources (Heltberg, 2002). It appears that smaller-sized groups
have more chance of managing resources in common, as Ostrom predicted.
To ensure compliance with the rule, fines in cash or in kind are often used,
moral pressure, exclusion from the group or religious taboos. The sanctions
are graduated and subject to negotiation. It appears that collective action for
common management of the natural resource is all the more likely when the
payoffs from cooperation are significant. Unwanted outside intervention, no-
tably by the government, can be destructive and lead to the disappearance
of the traditional systems of management of natural resources. Moreover,
common property is in many cases associated with considerations of equality.
Accordingly, inequalities and rent-seeking behaviour are unfavourable factors
for efficient resource management.
3 CLIMATE CHANGE
Climate change is an example of the tragedy of the commons. It is mainly due

to the increase in carbon dioxide emissions in the atmosphere since the indus-
trial revolution, and to methane emissions caused by stock raising. According
to the Intergovernmental Panel on Climate Change (IPCC), there is no doubt
about the human cause of climate change, which means that greenhouse gas
emissions must be reduced.
Although the combat against climate change shows the characteristics of
non-excludability and non-rivalry, it does not, however, correspond to a na-
tional public good. A country cannot combat climate change alone. Therefore,
the conventional solution of state intervention to decide on a centralized poli-
cy to provide the good, financed by taxation, is not appropriate. Kindleberger
(1986) defines global public goods as “all the goods accessible to all the coun-
tries which do not necessarily have an individual interest in producing them.”
While every country has an interest in climate change being limited, they
would each prefer that the cost be incurred by the others, resulting de facto
in free-rider behaviour. If the climate is a common good, combating climate
change therefore has the characteristics of a global public good. In the absence
of a benevolent supranational regulator, coordination between the countries

is necessary, which implies that 195 countries plus the European Union agree
on objectives, and even on means. Since the 1992 Earth Summit in Rio de
Janeiro, the countries meet regularly. From the first Conference of the Parties
(COP) in Berlin in 1995 to the COP 22 in Marrakesh, 22 negotiations have
followed one another, with contrasting approaches and efficiencies, which tes-
tifies to the difficulty of the task.
The first agreements can be likened to a top-down approach. These were
commitments approved collectively and applied in the various countries. At the
Rio Conference, the countries enacted the Climate Convention which is the ba-
sis of international cooperation on the climate. It recognizes the responsibility
of the industrialized countries in the increase in greenhouse gas (GHG) emis-
sions, but also the right of the poor countries to develop. The first commitment
made was to reduce, by 2000, the levels of GHG emissions to the level reached
in 1990. However, the results expected from this first stage soon appeared in-
sufficient. In 1997, the Kyoto Protocol was adopted with the more ambitious
target of reducing the GHG emissions of the industrialized countries by 5.2%
compared with the 1990 level, between 2008 and 2012. This target was deployed
at the country level. The European Union, for example, was proactive, mak-
ing the commitment to a reduction of 8% compared with 1990. The protocol is
of a legally binding nature. The countries which ratified the agreement (191
countries, the United States not having ratified) and which do not fulfil their
obligations can be sanctioned. Finally, the protocol provides for means of im-
plementation, largely based on the use of economic instruments. Accordingly,
an international market for greenhouse gases was defined. The aim is to help
countries reach their environmental target by minimizing their cost of reduc-
ing emissions. Since 2008, countries have therefore been allowed to trade car-
bon quotas. Two other procedures have been used: the Clean Development
Mechanism (CDM) and the Joint Implementation Mechanism (JIM). The lat-
ter mechanisms are intended for companies: by the first (second) mechanism,
a company from an industrialized country can finance emission reduction pro-
jects in a developing country (transition country), thereby obtaining quotas
that it can use or sell back in the markets. Despite project additionality issues, 4
these mechanisms can theoretically achieve economic efficiency while aiding
with countries’ development indirectly via technology transfers.
The countries can then meet their commitment by means of national
policies based on regulatory approaches or instruments of flexibility such
as Pigovian taxes, subsidies or pollution permit markets. For example, the
European Union chose to establish a carbon quota market as of 2005, the
European Union Emission Trading Scheme (EU ETS). In 2009 it covered
more than 10,000 plants in the energy and industrial sectors collectively re-

sponsible for around 40% of the European Union’s total greenhouse gas emis-
sions. Although the first learning phase (2005-2007) was criticized because
of the over-generous National Quota Allocation Plans (NQAPs) for the coun-
tries, this European market is now the biggest quota market in the world and
appears as a model in the combat against climate change.
Since the commitment period of the Kyoto Protocol was to end in 2012,
the Conferences of the Parties endeavoured to reach agreements for the fol-
lowing period in accordance with the Kyoto philosophy, i.e. limiting emissions
and creating a carbon price. However, this process was no longer successful, as
attested by the failure of the COP 15 in Copenhagen. Since then the aim has
been to change negotiating method.
The agreement signed at the COP 21 in Paris is based on a bottom-up
approach. Before the conference, each country announced its national
4
Each project eligible for the Clean Development Mechanism should be able to re-
duce greenhouse gas emissions, which the current situation would otherwise not
have permitted. In other words, it is a reduction in emissions by additional sources
to those which would occur in the absence of an activity within the framework of
projects such as the CDM or JIM.
contribution to the combat against climate change (INDC—Intended Nationally

Determined Contribution). These contributions form the basis for the inter-
national negotiations. At COP 21 the countries agreed to a common target, to
limit the temperature rise to 2°C, or even 1.5°C by 2100. An initial review is to
be performed in 2023, and then every five years. The countries will thus have
to revise their commitment to achieve the target set. The aim therefore is to
move forward in international cooperation in full transparency, because these
contributions, once announced by the countries, are published. This change
of perspective aroused much hope in Paris of moving forward on an ambitious
international climate policy.
Out of 195 countries, 186 cooperated by proposing their national contribu-
tion before COP 21. Nevertheless, several criticisms can be mentioned. First
of all, as underlined by Cramton et al. (2015), the procedure could encour-
age free-rider behaviour. Next, the national contributions are heterogeneous,
which makes comparisons between countries difficult. Moreover, the initial
analyses tend to show that the sum of these contributions is so far insufficient
to reach the set temperature target. It would seem that these contributions
lead rather to an average temperature rise of around 3°C by 2100, instead of
the set 1.5-2°C. Finally, it is unclear whether each country will honour its com-
mitments and continue its efforts after the Paris agreement.

Regarding the latter point, the United States has already undermined
the agreement, because on 1 June 2017 President Trump announced that his
country was pulling out of the Paris agreement. Obviously, a domino effect is
to be feared following this announcement. However, a number of countries
and regions such as India, China, Europe, Brazil, Canada and Australia imme-
diately expressed negative reactions to this announcement and all promised
to keep the commitments made. In this respect, the supply of the “combat-
ing climate change” global public good resembles the chicken game, which is
rather positive.
Faced with the criticisms expressed regarding the Paris agreement, some
works have endeavoured to define the architecture of an “ideal” agreement.
Schubert (2015) specifies its dimensions. To summarize, the effectiveness of
such an agreement would be ensured by the establishment of a single carbon
price, but each country would be able to choose the means to achieve this
(economic instruments or standards), thus obeying the concept of subsidiarity.
The concept of fairness would be achieved by a system of inter-country trans-
fers. Of course, the basis for these transfers has to be clearly defined. Pending
this ambitious global agreement, its principles can be adopted by groups of
countries, thereby, as per Nordhaus (2015), forming “climate clubs”. The
aim, however, is to find procedures for adjustment with the non-participant

countries, such as the establishment of border taxes. As specified by Schubert
(2015), that implies prior approval by the WTO, which is at present very
uncertain.
4 DEFORESTATION
130 million hectares of forest areas were lost between 1990 and 2015, main-
ly in the tropical countries which contain most of the world’s primary for-
est (FAO, 2016). 5 It is important to understand the phenomenon and slow it
down, because these changes in the size and composition of the forest resource
cause knock-on effects: deforestation jeopardizes forests’ capacity for produc-
ing goods and services on the scale of global and local common goods. Forests
constitute the second-largest carbon stock after the oceans. 6 Next, the forests
of developing countries are among the richest ecosystems on the planet, be-
cause the biodiversity gradient 7 increases as you move closer to tropical re-
gions: tropical forests are estimated to be a home to two-thirds of the earth’s
biodiversity (Gardner et al., 2009). Forests also contribute to the proper func-
tioning of catchment areas, the Amazonian forest being an emblematic exam-

ple. Finally, the multifunctionality of the forest in developing countries con-
tributes to the well-being of poor rural populations. This idea was popularized
by Pavan Sukhdev in work on the “GDP of the poor” (TEEB, 2008). 8 The aim
here is not to review the factors determining deforestation (for a review see,
for example, Angelsen and Kaimowitz, 1999), but to target the difficulty of
5
There now exist other sources of information on the dynamics of forests. See, for
example, Hansen et al. (2013). The forestry statistics used subsequently are all
taken from the Forest Resources Assessment, the latest edition of which dates
from 2015.
6
The IPCC’s work also emphasizes the effects of the amplification of climate change
on the forests. The earth’s carbon is highly likely (“with high confidence”) to be
released into the atmosphere as a result of higher temperatures, droughts, storms,
increased tree mortality, etc. (Intergovernmental Panel on Climate Change, 2014).
7
For more discussion of the biodiversity gradient concept see, for example, Mannion
et al. (2014).
8
There is a controversy in the literature regarding the nature of the contribution of
forest resources to households’ well-being. Does multifunctionality act as a safety
net for poor households in the event of a negative shock (“insurance company of
the wild”)? See, for example, Delacote (2007). Or is the forest’s multifunctionality
able to generate regular revenues (“the supermarket of the wild”)? It would seem
that the second hypothesis is better substantiated by case studies than the first
one (Wunder et al., 2014).
collective action applied to forests and then examine the solutions which have
been imagined.
Theoretical work highlights the difficulties of international collective ac-
tion on forests. This is the result of a dual asymmetry: forest conservation
mainly benefits the developed countries whereas the developing countries are
more exposed to climate change and the local consequences of deforestation
(Sandler, 1993). As a consequence, the forestry issue has aroused friction be-
tween countries of the North and South. This brought the international ne-
gotiations on this subject to a deadlock during the preparation of the 1992
Earth Summit. Three incompatible positions were under discussion at that
time (Humphreys, 2006; Karsenty and Pirard, 2007). The first position was
to consider forests as a global public good (GPG) following the works of Kaul
et al. (2003). This approach to the forest was supported mainly by developed
countries but was the subject of great reservations among developing coun-
tries. One of the main challenges was to demonstrate that forest conservation
is compatible with development and poverty reduction targets (Perrings and
Gadgil, 2003). The main weakness of this view of the forest as a GPG was that
it had no foundation in international law. It was rejected by the Group of 77
and since then it has no longer appeared on the international environmen-
tal agenda. The Convention on Biological Diversity, which came into effect
in 1993, could have made it possible to protect forest biodiversity. But the

cooperation of developed countries financing the incremental cost of the con-
servation of biodiversity in developing countries gives the optimal situation
only in very specific cases (Barrett, 1994; Winands et al., 2013). The second
position was that of the developing countries. It highlights forests as states’
sovereign resources. The developing countries thus demanded the right to use
this resource according to their development objectives. Note that this concept
of forests as part of the wealth of nations is based on indisputable legal foun-
dations. It is reflected by the predominance of public ownership and manage-
ment of forests throughout the world and especially in developing countries:
between 70% and 80% of forests worldwide are still state-owned (White and
Martin, 2005). The third position stipulates that forests should be considered
as local common goods. The local populations, i.e. the local forest communi-
ties, are considered best placed to ensure the conservation and sustainable use
of the forest.
Entrusting forest resources to the local populations is one of the possible
solutions explored to make their management more efficient. Here we exam-
ine this possibility and the possibility of environmental policies coming under
the “command and control” approach and market instruments.
Strengthening “forest communities”, which are considered more capable

of managing the forest efficiently, is an old idea (Ostrom, 1999b; Agrawal,
2007). It contributed to the demand for forestry devolution in the 1980s
(Ribot, 2002; Agrawal, Chhatre and Hardin, 2008). It was reinforced by obser-
vation of the shortcomings of public ownership and management of forests.
These shortcomings of the state caused public forests to switch to free access
and were the theatre of a tragedy of the “unmanaged” commons (Hardin,
1998; Ostrom, 1999a). This observation helped encourage the evolution from
public ownership in favour of forest communities. 9 What evaluation can be
made? First, in many cases, forestry devolution was incomplete. States of-
ten try to keep control of the resource whereas effective devolution requires
the construction of responsible institutions at all levels of government and
a secure domain for independent decision making on the local level (Ribot
et al., 2006). However, complete devolution can also lead to more deforesta-
tion. Indeed, ownership conflicts can arise between the state and the “com-
munities” (Angelsen, 2001). Moreover, the benefits resulting from a reduction
in deforestation are not always positive, even when there is powerful collective
action. This can be explained by factors exogenous to the forest communities.
When the political environment is unstable, the benefits of collective action
are annihilated (Desbureaux, 2016). In the same vein, market integration in-
creases the exposure of local forest communities to the influence of commer-

cial operators motivated by the extraction of resources, and aggravates the
environment/development dilemma. Collective decisions which contribute to
deforestation can therefore be taken (Engel and Palmer, 2011). 10 Finally, if the
local forest communities do not face an environment/development dilemma,
they are not capable of internalizing the global externalities caused by defor-
estation. Accordingly, other instruments must be established.
Slowing down deforestation may involve the deployment of “command
and control” type policies. In this regard, this means Protected Areas (PAs),
for which the increase in area is relatively recent. At present, there are about
100,000 PAs covering 12% of the emerged land (Chape et al., 2005). The effec-
tiveness of PAs in terms of deforestation varies due to failure to comply with
9
Between 2002 and 2008, forest areas owned and managed directly by states de-
creased by around 200 million hectares in 30 tropical-forest countries (-15%);
forest areas devolved to forest communities and indigenous peoples increased by
29 million hectares (+66%), while transfers of forest ownership increased by 22%
(White and Martin, 2005).
10
Generally, even if property rights to the forest are respected, the characteristics
of the forest resource lead the “deforestation game” to different results regarding
deforestation (e.g. Rodrigues et al., 2009).
conservation rules and the existence of deforestation leakages. For example,

PAs seem effective in Brazil (e.g., Kéré et al., 2017) and much less so in the
case of Madagascar (Desbureaux et al., 2016). Moreover, there is no consensus
on the methods of implementation of PAs: increasing the severity of access
restrictions does not necessarily increase effectiveness (Ferraro et al., 2013;
Pfaff et al., 2014). Note, however, that the establishment of a Protected Area
does not necessarily create a conservation/development dilemma. Although
a higher proportion of poor households live in the vicinity of PAs, this is not
necessarily the symptom of a poverty trap pushing the poor outside of the
protected areas (Naughton-Treves et al., 2011).
Finally, payments for environmental services (PES) could also help to slow
deforestation. Costa Rica, which has experienced rapid deforestation, was a
pioneer in establishing this scheme (Pagiola, 2008). PES are market instru-
ments. Their principle is simple: the stakeholders are volunteers; those who
contribute to the provision of environmental services are remunerated by the
users (Wunder, 2005, 2015). PES can be local or introduced in a national or
international framework. In these latter two cases, they are financed by the
state or the international community. Regarding this, the REDD mechanism
(Reducing Emissions from Deforestation and Forest Degradation) initiated
at the COP in Bali (2007) or its extended version REDD+ 11 could finance
the establishment of PES (Pagiola, 2011). PES are promising instruments,

but they can only be deployed and effective when several conditions are met
(Wunder, 2013). One crucial condition concerns the definition of property
rights (Karsenty and Assembé, 2011), which brings the analysis back to the
role of institutions. Finally, note that the various solutions envisaged here are
not mutually exclusive: PAs and PES can even be complementary (Robalino
et al., 2015).
5 URBAN CONGESTION
Urban congestion is a contemporary example of the tragedy of the commons.

Well-known in developed countries, it is now affecting the big cities of devel-
oping countries, where journeys are increasingly long. Population growth and
increased richness are important factors explaining this phenomenon, exac-
erbated by the idea of a car-centric Western lifestyle (Gakenheimer, 1999).
11
REDD+ includes afforestation, the improvement of carbon stocks, but also co-
benefits such as the reduction of poverty, the preservation of biodiversity and the
improvement of forest governance.
Whatever the reasons, urban congestion has caused a reduction in the mo-
bility of economic agents and thus engenders economic inefficiencies (Arnott
et al., 2005).
The excessive use of the transport network results from the fact that its
use is free. The solution of network privatization of course seems unattain-
able, as do special forms of governance implemented by communities. Unlike
the management of pastures, for example, there are no Ostrom-style collec-
tive agreements to avoid state regulation of the phenomenon. The imbalance
between the road network supply and demand therefore materializes in the
form of queues, which are an illustration of the prisoner’s dilemma. An in-
crease in supply is impeded by the increased scarcity of land and by financing
issues, and raises the question of the location of collective goods having nega-
tive externalities and the knock-on future agglomeration effects. Accordingly,
thought must inevitably be given to a public policy of regulation of demand.
The first way is “command and control” type policies. This means, for
example, prohibiting or restricting access to cities for certain types of vehi-
cles. Cities such as Barcelona, Amsterdam, Athens and more recently Paris
have adopted it, implemented by the alternation of licence plate numbers or
the use of coloured stickers. However, the economic literature emphasizes
the ineffectiveness of standardization policies for internalizing externalities.

The wealthiest economic agents are given an incentive to own a second car to
have an even- and an odd-numbered licence plate number. As a consequence,
regulation creates this perverse effect of increasing the size of the car fleet.
Moreover, it is difficult to analyse these policies. Increasing use of the car is
also the cause of various types of other externalities such as local atmospheric
pollution, e.g. fine particles but also global pollution via greenhouse gas emis-
sions, noise pollution and visual pollution, not to mention the social costs en-
tailed by road accidents. These “command and control” policies are therefore
adopted more to regulate fine particle pollution than congestion.
Another way is to introduce a charge on congestion as a negative external-
ity (Knight, 1924; Pigou, 1932), popularized by Vickrey (1969). This optimal
charge must correspond to the congestion externality, equivalent to the dif-
ference between the cost that the user imposes on society and that which he
actually incurs. In practice, the authorities use zone charges or toll systems on
trunk roads. In the first case, users pay a fixed duty whenever they travel on
a road or a section of land. This is found mainly in city centres, e.g. in London
since 2003, Stockholm since 2007, or again Milan since 2008. In the second
case, the user pays a toll when they travel on a section of a trunk road. To the
extent that congestion varies with time, toll systems applying peak hours and
off-peak hours are closest to a real charge on congestion. Road toll systems
such as those on state highway 91 in California or in Singapore are good exam-
ples, because the tariffs vary depending on the observed degree of congestion
of the road before regulation.
Zone charges and road tolls have, in each case, permitted gains in ac-
cessibility due to a reduction of traffic and an increase in the traffic speed.
However, cost-benefit analyses conducted on the London toll system have
aroused controversy. According to Prud’homme and Bocarejo (2005), this toll
system is an economic failure, because the costs involved in its establishment
are higher than the gains represented by the reduction in congestion. This
result is criticized by Raux (2005), blaming the great sensitivity of simula-
tion results. Mackie (2005), for his part, considers that the authors underes-
timated the benefits of the toll system. Whatever the case, it is clear that any
economic policy must be analysed as a whole, and this type of study makes it
possible to improve future urban toll experiments.
Some authors propose using transferable rights markets as an alternative
to the toll system (Goddard, 1997; Verhoef et al., 1997 and Raux, 2004, 2008).
Proposed by Dales (1968) and expanded on by Tietenberg (1985) to reduce
pollution, this type of market could be introduced to regulate congestion. It
would involve defining an acceptable upper limit to congestion and convert-
ing it into the form of travel rights in kilometres or entries into a zone. Once

distributed to economic agents, these quotas would be tradable on a secondary
market.
The economic literature postulates, in a perfect world, the equivalence
between the Pigovian tax and quota markets as a way to internalize a negative
externality, and their superiority over “command and control” policies. This
is because the decision to use the car or else use public transport, carpooling
or else “soft” transport modes, becomes a personal decision and is no longer
imposed by the regulator. However, empirical research shows that the elastic-
ity of demand to urban toll systems is low (Burris et al., 2004). Therefore, an
instrument based on quantities would be more effective than one based on
prices, such as congestion tolls. Moreover, quota markets could provide the
regulator with greater flexibility through their initial distribution. Indeed,
while the question of effectiveness is crucial in establishing a congestion regu-
lation policy, the question of fairness should not be neglected. Provided that
the quota market is competitive, the initial quota distribution can be used
to implement this criterion of fairness. An initial distribution free of charge
would make it possible to grant certain users a number of trips or entries into
a zone without payment. Such a distribution could ensure the necessary ac-
ceptability of regulation.
This is a crucial issue, as the French government’s abandonment of the

planned ecotax on heavy goods vehicles in 2014 clearly illustrates. Although
congestion regulation seems indispensable to increase the mobility of eco-
nomic agents, the lack of acceptability restricts its application. According to
Harrington et al. (2001), congestion tolls are perceived by the users as extra
taxes without any real perception of the reduction in congestion. It is true that,
once the toll has been introduced, this perception becomes a reality and the
tolls are better accepted, as attested by the re-election of the mayor of London
following the establishment of the toll system and the referendum in favour
of maintaining the Stockholm toll system, even if those organized in the sur-
rounding towns received more ‘No’ votes. However, this implies initially enact-
ing the project without having majority support from public opinion. Another
way of obtaining acceptability would be to promise that the revenue generated
would be returned to the users directly or indirectly by a reduction in other tax-
es. In this respect, obtaining revenue and acceptability are linked. For example,
Parry and Bento (2001) show that the congestion toll, by increasing the cost of
transport, reduces the labour supply. As a consequence, the losses in terms of
well-being in the labour market may exceed the gains from the Pigovian tax.
However, the authors show that if the revenue from the congestion tax is used
to reduce the taxes on labour, the net impact on the labour supply becomes
positive. Accordingly, acceptability can be achieved even with a paying system,

whether it be ultimately a congestion tax or travel quotas sold at auction.
From this viewpoint, obtaining revenue becomes an important aspect in
the implementation of congestion regulation where there are pre-existing
distorting taxes. Therefore, a tariff system based on users’ readiness to pay
would be able to maximize this revenue. This principle poses two questions of
implementation: the revelation of private information on the readiness to pay
to be able to travel, and the means of achieving this. Mougeot and Schwartz
(2017) propose an optimal mechanism of allocation of travel quotas in the
presence of information asymmetry. The quantity of quotas sold internalizes
congestion, while a second-degree discriminating tariff system allows the reg-
ulator to maximize revenue. In this way, congestion regulation could attain
the criteria of effectiveness and fairness and be accepted by the users.
6 THE FISCAL DEFICIT
The theory of common goods can be applied to public finances in order to ex-
amine two issues having important implications for economic policy. The first
issue is the source of the fiscal deficit bias, i.e. the clearly excessive deficit seen
not only in developing countries but also in developed countries. The second
issue is the impact of tax competition on tax rates. The aim is not to formally
describe the models used, but to show the wealth of fields of application of the
theory of common goods in a field apparently very remote from the economics
of the environment and natural resources.
6.1 Fiscal deficit bias

Consider a case of political fragmentation. Spendthrift ministries, political
parties in a parliamentary coalition or lobbies representing specific interests
(e.g. geographic interests) disagree on the level, the composition or the geo-
graphic breakdown of the public goods to be provided (“pork barrel spend-
ing”). The rival groups finance public spending from tax revenue which gen-
erates the usual distortions. The benefits of the spending are private in the
sense that they are captured by one group whereas the costs of the taxation
are only partially internalized because they are spread across all the groups.
The result is a tragedy of the commons of the public finances reflected by ex-
cessive spending compared with the Pareto optimality. It was first described
by Weingast et al. (1981). 12
The theory of common goods can account for an anomaly noted in fiscal

policies. Now, from a normative standpoint, fiscal policy should be counter-
cyclical. This is the case where there is price stickiness or financial market im-
perfection in the Keynesian model. In a neo-classical context, fiscal policy min-
imizes tax distortions. For example, in Barro’s tax smoothing model (1979),
tax rates should be kept constant as long as spending shocks are temporary.
As a consequence, the fiscal surplus should also be positively correlated to the
economic cycle. However, in the developing countries, fiscal policy is usually
pro-cyclical (e.g. Frankel et al., 2013). One explanation can be found in the
voracity effect (Tornell and Lane, 1999), which describes a situation in which
groups come into conflict to appropriate tax revenue in periods of booming
export revenues. The result of this is then a more-than-proportional increase
in spending relative to revenues. According to Talvi and Vegh (2005), the in-
stability of the tax base of developing countries generates procyclicality. The
excessive increase in spending in periods of booming export revenues may also
be the result of a situation of information asymmetry between the corrupt
decision maker and the citizen. The latter observes the economic cycle but not
the appropriations of rent by the decision maker. The citizen then demands
12
The reader can refer to Persson and Tabellini (2000) for an overview of the theo-
retical models.
an increase in government spending to prevent this unjustified confiscation

(Alesina et al., 2008). 13
The theory of common goods has given rise indirectly to the vast literature
devoted to solutions to reduce the deficit bias. As a reminder, these could be
procedural fiscal rules which could take the form of delegation to a higher au-
thority (e.g. in a government to the finance minister or the prime minister) 14
or a commitment by the various groups to comply with a cap before the start
of the budget process (e.g. Hagen and Harden, 1995). They could also be nu-
merical fiscal rules (e.g. Kopits and Symansky, 1998) which could be supra-
national (Krogstrup and Wyplosz, 2010), concerning the fiscal surplus, debt,
spending or even revenues. The rules may provide for the exclusion of produc-
tive spending (the “golden rule”) or be conditional on the economic situation.
These institutional agreements can be interpreted as the state means of a
nation state or a union of states to restrict access to tax revenues that were
formerly accessed freely.
6.2 Tax competition

Tax competition may lead to distortions in opposing directions depending on
the type of externalities generated (Keen and Kotsogiannis, 2002).

The distortions may result from horizontal externalities. This means
that political entities of the same level, states for example, compete with
one another to attract a mobile tax base using the tax rate as an instrument
(“Bertrand type” competition). In their decision the states do not take into
account the negative repercussions on the other states of a reduction in the
tax rates that they grant to attract the tax base. The result of this is tax
13
Time inconsistency can also be interpreted with this theoretical framework con-
sidering tax revenue from an intertemporal perspective: the government does not
internalize the costs generated by a fiscal deficit for future governments. Velasco
(2000) stresses the dynamic aspects of political fragmentation. The common good
is then the state’s net wealth. The government which generates a debt does not
internalize the resulting costs for its successors (stock externality). In the same
spirit, Tabellini and Alesina (1990) consider the consequences of a series of po-
litical majorities not sharing the same objectives in terms of the supply of public
goods. An identical interpretation can be proposed for models of fiscal wars of at-
trition (Alesina and Drazen, 1991).
14
We could also cite works in support of the delegation of fiscal policy to independent
agencies (e.g. Wyplosz, 2005; Debrun et al., 2009). These agencies, on the model
of independent central banks which target inflation, could be able to reconcile the
search for credibility of the long-term debt sustainability objective and the short-
term flexibility made necessary by economic contingencies.
rates that are generally too low (for summaries of the literature: Madiès et al.,
2005, and Keen and Konrad, 2013). States anticipating this price competi-
tion may endeavour to reduce its intensity by making efforts to capture the
tax base, i.e. make it less mobile by communication campaigns on the states’
advantages, by advertising, influencing, etc. Konrad (2008) describes this ri-
valry for the appropriation of tax revenue in terms of the theory of common
goods. Arousing loyalty toward a state among owners of capital amounts to
creating rights of ownership to a tax base for which mobility is an essential
characteristic.
The distortions may also be the consequence of vertical externalities.
In a federal structure they concern several entities which are vertically or-
dered and in competition to appropriate a shared tax base (Flowers, 1988).
The mechanism can be schematically described as follows: by increasing tax
rates the local authorities do not take into account the erosion caused to the
federal tax base. More precisely, they incur only a fraction of the cost of the
reduction in the federal tax base, this fraction being inversely proportional
to the number of local authorities. The result is excessive local-authority tax
rates and a position on the descending part of the Laffer curve. This vertical
competition has been described as a problem of the commons, in particular by
Wrede (1999). A single tax collection agency would be able to internalize these
externalities, but at the expense of local authorities’ sovereignty.

7 CONCLUSION
The common good concept was popularized by Hardin’s research and by the
work of Nobel Prize winner Elinor Ostrom. Often used by a community of
users, these goods are doomed to be over-exploited, as Hardin predicted.
Although game theory and Ostrom’s work relativize this outcome, it turns out
that certain major contemporary economic problems such as climate change,
deforestation, urban congestion and the fiscal deficit can all be analysed in
terms of the tragedy of the commons.
A study of these issues reveals that the various means adopted to prevent
the over-exploitation of resources, whether it be the forest, the climate, roads
or tax revenue, are practically all based on state intervention. This interven-
tion may be based on regulatory approaches such as protected areas, green-
house gas emission standards, driving permits via alternating licence plates,
or fiscal rules. Economic instruments such as PES, an international market
for greenhouse gas quotas, a congestion tax or a driving quota market are also
adopted. The use of hybrid instruments is also at an advanced stage: PES and
PAs for forest safeguard or an incentive mechanism to reduce congestion.
None of these illustrations has revealed a particular interest for complete-
ly market-based solutions. Moreover, only the analysis of means to combat
deforestation enabled us to envisage the institutional agreements between
individuals referred to by Ostrom. In the latter case, the decentralization of
rights of ownership is a necessary condition for the emergence of agreements
in communities. The effectiveness of hybrid solutions combining the alloca-
tion of rights of ownership and institutional agreements is nevertheless ques-
tioned as a way of combating deforestation.
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Theory of Commons - Combes Et Al

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A review of the economic theory of the commons

Jean-Louis Combes, Pascale Combes-Motel, Sonia Schwartz

This document is the English version of:

Available online at:

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2 THE THEORY OF COMMON GOODS

Here we start from the definition of a common good in accordance with

to Hardin, non-excludability and rivalry in consumption are the cause of the

2.1 From the notion of common good…

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2.2 …To the tragedy of the commons

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themselves by voting. There is an apparently simple answer: individuals unite

2.3 Is the tragedy of the commons inevitable?

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2.3.1 The “chicken game” or cooperation at any price

The chicken game is a variant of the prisoner’s dilemma. However, while it is

2.3.2 The stag hunt game

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2.4 Ostrom’s work

goods. Works have illustrated rules established by societies for management

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Climate change is an example of the tragedy of the commons. It is mainly due

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contribution to the combat against climate change (INDC—Intended Nationally

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aim, however, is to find procedures for adjustment with the non-participant

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Strengthening “forest communities”, which are considered more capable

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conservation rules and the existence of deforestation leakages. For example,

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Urban congestion is a contemporary example of the tragedy of the commons.

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This is a crucial issue, as the French government’s abandonment of the

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6 THE FISCAL DEFICIT

6.1 Fiscal deficit bias

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an increase in government spending to prevent this unjustified confiscation

6.2 Tax competition

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BARDHAN, P. (2000). “Irrigation and Cooperation: An Empirical Analysis of

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Environmental Research Letters, 8(2), pp. 025011. Doi: 10.1088/1748-9326/

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KEEN, M. J. and C. KOTSOGIANNIS (2002). “Does Federalism Lead to Excessively

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OSTROM, E. (1999b). Self-Governance and Forest Resources, 20, Bogor, Indonesia:

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Available at: http://www.forest-trends.org/~foresttr/publication_details.

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