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Amy Sinden

Abstract

According to generally accepted wisdom of welfare economics, there are two potential solutions to the tragedy of the commons: 1) government regulation, or 2) privatization. Government regulation and privatization can usefully be distinguished from each other based on who answers the "how much" question. Under the former, government answers the "how much" question, and under the latter, the market answers it. When the U.S. environmental movement began in the 1970s, government regulation seemed the obvious choice. But in recent years, intellectual fashions have changed, and privatization has become the preferred solution. The privatization solution, however, is a myth that exists, if at all, only in a world of theory. (It is best conceptualized as two distinct solutions: "The private property solution" divides the commons into private parcels such that there are no remaining spillover effects or externalities. "The market solution" eliminates or minimizes transaction costs so that spillover effects will be reduced to optimal levels through Coasian bargaining.) But none of the regimes commonly cited as examples of the privatization solution to the tragedy of the commons actually are. In some instances, the mistake is conceptual. Environmental trading markets and water markets are often mischaracterized as privatization solutions when in fact they rely on government to answer the "how much" question. In other instances, the mistake occurs in the application of the theoretical concept to the circumstances likely to exist in the real world. Thus, proposed privatization regimes involving land, oceans, and wildlife could conceivably meet the conditions for the private property or market solutions in a theoretical world, but the dynamics of ecological degradation are such that it is impossible for those idealized conditions to be met, or even reasonably approximated, in the real world.

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