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Two versions of the tragedy of the commons

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  • Hervé Moulin
  • Alison Watts

Abstract

The commons are a one input-one output production process with increasing marginal cost. In the average return game, each agent chooses his input contribution and total output is shared in proportion to individual contributions. In the average cost game, each agent chooses his output share and total input cost is shared in proportion to individual demands. The tragedy is that the non cooperative equilibrium results in inefficient overutilisation of the technology. We prove formally the tragedy when preferences are convex and both goods are normal. This result has not bee proved previously on such a general preference domain. We also show that overutilisation is less severe in the average cost game than in the average return game.
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Suggested Citation

  • Hervé Moulin & Alison Watts, 1996. "Two versions of the tragedy of the commons," Review of Economic Design, Springer;Society for Economic Design, vol. 2(1), pages 399-421, December.
    • Handle: RePEc:spr:reecde:v:2:y:1996:i:1:p:399-421
    DOI: 10.1007/BF02499143
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    References listed on IDEAS

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    1. Romano, Richard E., 1988. "Oligopolistic competition for market share via voluntary excess supply," International Journal of Industrial Organization, Elsevier, vol. 6(4), pages 447-468.
    2. Watts, Alison, 1996. "On the Uniqueness of Equilibrium in Cournot Oligopoly and Other Games," Games and Economic Behavior, Elsevier, vol. 13(2), pages 269-285, April.
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    4. Moulin Herve & Shenker Scott, 1994. "Average Cost Pricing versus Serial Cost Sharing: An Axiomatic Comparison," Journal of Economic Theory, Elsevier, vol. 64(1), pages 178-201, October.
    5. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 395-410.
    6. Bryant, John, 1987. "The Paradox of Thrift, Liquidity Preference and Animal Spirits," Econometrica, Econometric Society, vol. 55(5), pages 1231-1235, September.
    7. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-1037, September.
    8. Roemer, J.E., 1988. "On Public Ownership," Papers 317, California Davis - Institute of Governmental Affairs.
    9. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
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    Cited by:

    1. Leroux, Justin, 2005. "Strategyproof Profit Sharing: A Two-Agent Characterization," Working Papers 2005-04, Rice University, Department of Economics.

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    More about this item

    Keywords

    D62; D72; Externalities; Tragedy of the commons; Cost sharing; Surplus sharing; Average cost; Average return;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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