CC–PP game

Last updated

The Commonize Costs–Privatize Profits Game (or CC–PP Game) is a concept developed by the ecologist Garrett Hardin to describe a "game" (in the game theory sense) widely played in matters of resource allocation. [1] The concept is Hardin's interpretation of the closely related phenomenon known as the tragedy of the commons, [2] and is referred to in political discourse as "privatizing profits and socializing losses."

Contents

The CC–PP Game originally appeared in Hardin's book titled Filters against Folly: How To Survive Despite Economists, Ecologists, and the Merely Eloquent which was published in 1986. [1]

Players of the CC–PP Game aim to commonize the costs (or externalities) generated by their activities across the wider community, while privatizing all profits (financial or otherwise) to themselves. The individual does not broadcast that they are playing the game in order to continue profiting. [1]

Hardin related the CC–PP Game to ecological problems such mining, groundwater overdraft, cattle ranching and other actions that cause the depletion of natural resources or an increase in pollution. [3]

Tragedy of the Commons and the CC–PP Game

The CC–PP Game is used to explain how individuals utilize public goods, specifically scarce natural resources. [4] These goods include resources such as clean air, rivers, forests and groundwater. These are public goods because they are both non-excludable and non-rival. It is very difficult to assign property rights to public goods, which results in many people using the resource and the resource's subsequent depletion or the tragedy of the commons. [4]

Hardin uses the original conception of the commons as a "village pasture used for grazing sheep or cattle in preindustrial England." [5] The pasture was a public space for any villager to use to graze their livestock. Villagers gained profit from each additional animal on the pasture, but did not have to pay the costs of the animals depleting the grass. [5] The village as a whole took on the cost of overgrazing the pasture. This represented the CC–PP Game for Hardin in which the incentive to create individual profit was greater than the cost of overgrazing the field since it was spread out between many individuals.

In a more modern example of the CC–PP Game, Hardin attributes the desertification of the Sahel desert to "unmanaged access and overuse." [1]

John D. Aram summarized the tragedy of the commons and the CC–PP Game stating, "Tragic macro effects result from a structure of micro incentives that allows unmanaged access to a fixed resource." [5]

Game Theory and the CC–PP Game

Pay-off matrix for water extraction in CC-PP Game CC-PP Game.png
Pay-off matrix for water extraction in CC-PP Game

The CC–PP Game is an example of a non-cooperative equilibrium or Nash Equilibrium in which the parties in the game do not cooperate and are incentivized to deplete natural resources, resulting in an inefficient outcome. [4]

The CC–PP Game refers to the market for a scarce natural resource, for example groundwater. Groundwater is scarce because it can be extracted from the ground at a much higher rate than it can be replenished naturally. [4] In addition, clean groundwater in many areas is limited. Groundwater is a natural resource that can be difficult to assign property rights to and is needed by all individuals.

Private firms as well as everyday consumers will extract groundwater for their own use. Private firms gain profits from using the water to produce a good or directly selling the water. Individual consumers gain utility or satisfaction from drinking the water or using it in their homes. Both the private firm and the individual have an incentive to take water from the ground and receive a gain in utility from taking that water (privatized profits). [4] The water supply is diminished, resulting in a tragedy of the commons and a loss of utility for everyone that uses the groundwater (communized costs). [4] Since an individual user does not have to pay for the cost of water depletion, but is still gaining the utility or profit from using the water, the individual will continue to use the water. Every individual will come to this same conclusion and the natural resource will be depleted. [5]

This can be seen in a pay-off matrix. Where there are two individuals making separate choices to defect by privatizing benefits and commonizing costs, or to cooperate and refrain from personal gain in order to preserve a resource. If Individual A decides to preserve water while Individual B does not then Individual A will only receive $20 while Individual B gains $80. This is true vice versa if Individual B decides to preserve water and Individual A decides to extract. Both individuals have an incentive to defect and extract water to gain $50, so as rational consumers they will extract water. [4] However, if neither party extracted water then they would actually gain $50 more in profit. [4] This is a case of the Prisoner's Dilemma. [5] However, unlike the Prisoner's Dilemma that only has two people, CC–PP Game is an aggregate of many individuals, making it harder to see the effects of a single person's decisions. [5]

Real Life Examples

Fisheries

Fisheries are a prime example of the CC–PP Game. Companies gain a profit for every fish that they catch and are incentivized to continue catching fish. However, their overfishing depletes the amount of fish in the ocean, hurting the environment and other individuals. All individuals pay for the cost of a decrease in the amount of fish.

Mining

Mining companies participate in the CC–PP Game by depleting their worker's health. [1] Hardin argues that the owners of mining companies profit from their workers, while workers suffer the negative health effects of mining such as respiratory damage, chronic lead poisoning, mercury poisoning, black lung disease, and poisoning by radon gas in uranium mines. [1] Hardin states, "Until the development of nationalized schemes of compensation in the twentieth century the costs of deteriorated health were "paid" by the miner himself, partly in medical bills but even more in reduced capacity to work and enjoy life." [1]

Intangible Assets

Hardin also included "intangible assets" such as “worker safety, stabilizing the cost of healthcare, and economic efficiency" as instances of tragedy of the commons. [5] These assets can also deteriorate if individuals choose to privatize benefits and communize costs.

Policy Applications

Hardin proposed several solutions to the CC–PP Game in his books and essays.

In Hardin's early works, he expressed his belief that they only way to protect natural resources was by limiting individual's freedoms. [5] He stated that preserving the commons would only be possible by “mutual coercion, mutually agreed upon.” [5] Today, this would be considered command and control regulation. Hardin believed that individuals needed regulation or systems in place to force them to stop depleting resources. He rejected the option of people volunteering to not ruin common goods because of individual's lack of will power and lack of incentives to limit themselves. He believed that voluntary self-restraint was not a solution to avoiding the tragedy of the commons. [5]

However, later in his career, Hardin argued that a strict individual responsibility could preserve the commons. [5] He described systems of accountability for policy makers in order to preserve the commons for their constituents. This puts the responsibility for preserving the commons onto the political system. [5]

Ideally Hardin wanted all costs and benefits to be privatized. [5] John D. Aram argues that Hardin would be in favor of a flat tax structure and elimination of public subsidies. [5]

See also

Related Research Articles

Natural resource Resources that exist without actions of humankind

Natural resources are resources that exist without actions of humankind. This includes all valued characteristics such as magnetic, gravitational, electrical properties and forces, etc. On Earth it includes sunlight, atmosphere, water, land along with all vegetation, crops and animal life that naturally subsists upon or within the previously identified characteristics and substances.

Tragedy of the commons Depletion of a shared resource according to ones self-interests

The tragedy of the commons is a situation in a shared-resource system where individual users, acting independently according to their own self-interest, behave contrary to the common good of all users by depleting or spoiling the shared resource through their collective action. The theory originated in an essay written in 1833 by the British economist William Forster Lloyd, who used a hypothetical example of the effects of unregulated grazing on common land in Great Britain and Ireland. The concept became widely known as the "tragedy of the commons" over a century later due to an article written by American biologist and philosopher Garrett Hardin in 1968. In this modern economic context, "commons" is taken to mean any shared and unregulated resource such as atmosphere, oceans, rivers, fish stocks, roads and highways, or even an office refrigerator.

Environmental economics is a sub-field of economics concerned with environmental issues. It has become a widely studied subject due to growing environmental concerns in the twenty-first century. Environmental Economics "...undertakes theoretical or empirical studies of the economic effects of national or local environmental policies around the world .... Particular issues include the costs and benefits of alternative environmental policies to deal with air pollution, water quality, toxic substances, solid waste, and global warming."

Market failure in economics, inefficient resource allocation resulting in a net loss of value

In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient– that can be improved upon from the societal point of view. The first known use of the term by economists was in 1958, but the concept has been traced back to the Victorian philosopher Henry Sidgwick. Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, or externalities.

Resource depletion depletion of natural organic and inorganic resources

Resource depletion is the consumption of a resource faster than it can be replenished. Natural resources are commonly divided between renewable resources and non-renewable resources. Use of either of these forms of resources beyond their rate of replacement is considered to be resource depletion. The value of a resource is a direct result of its availability in nature and the cost of extracting the resource, the more a resource is depleted the more the value of the resource increases. There are several types of resource depletion, the most known being: Aquifer depletion, deforestation, mining for fossil fuels and minerals, pollution or contamination of resources, slash-and-burn agricultural practices, Soil erosion, and overconsumption, excessive or unnecessary use of resources.

Public good (economics) Good that is non-excludable and non-rival

In economics, a public good is a good that is both non-excludable and non-rivalrous, in that individuals cannot be excluded from use or could benefit from without paying for it, and where use by one individual does not reduce availability to others or the good can be used simultaneously by more than one person. This is in contrast to a common good such as wild fish stocks in the ocean, which is non-excludable but is rivalrous to a certain degree, as if too many fish are harvested, the stocks will be depleted.

Community management or common-pool resource management is the management of a common resource or issue by a community through the collective action of volunteers and stakeholders. The resource managed can be either material or informational. Examples include the management of common grazing and water rights; fisheries and open-source software. In the case of physical resources, community management strategies are frequently employed to avoid the tragedy of the commons and to encourage sustainability.

Free-market environmentalism argues that the free market, property rights, and tort law provide the best means of preserving the environment, internalizing pollution costs, and conserving resources.

A social dilemma is a situation in which an individual profits from selfishness unless everyone chooses the selfish alternative, in which case the whole group loses. Problems arise when too many group members choose to pursue individual profit and immediate satisfaction rather than behave in the group's best long-term interests. Social dilemmas can take many forms and are studied across disciplines such as psychology, economics, and political science. Examples of phenomena that can be explained using social dilemmas include resource depletion, low voter turnout, and overpopulation.

Garrett Hardin American ecologist

Garrett James Hardin was an American ecologist and proponent of eugenics who warned of the dangers of human overpopulation. He is most famous for his exposition of the tragedy of the commons, in a 1968 paper of the same title in Science, which called attention to "the damage that innocent actions by individuals can inflict on the environment". He is also known for Hardin's First Law of Human Ecology: "We can never do merely one thing. Any intrusion into nature has numerous effects, many of which are unpredictable." He is listed by the Southern Poverty Law Center as a white nationalist, whose publications were "frank in their racism and quasi-fascist ethnonationalism".

The commons is the cultural and natural resources accessible to all members of a society, including natural materials such as air, water, and a habitable earth. These resources are held in common, not owned privately. Commons can also be understood as natural resources that groups of people manage for individual and collective benefit. Characteristically, this involves a variety of informal norms and values employed for a governance mechanism. Commons can be also defined as a social practice of governing a resource not by state or market but by a community of users that self-governs the resource through institutions that it creates.

In economics, a common-pool resource (CPR) is a type of good consisting of a natural or human-made resource system, whose size or characteristics makes it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use. Unlike pure public goods, common pool resources face problems of congestion or overuse, because they are subtractable. A common-pool resource typically consists of a core resource, which defines the stock variable, while providing a limited quantity of extractable fringe units, which defines the flow variable. While the core resource is to be protected or nurtured in order to allow for its continuous exploitation, the fringe units can be harvested or consumed.

In economics, a good or service is called excludable if it is possible to prevent people (consumers) who have not paid for it from having access to it. By comparison, a good or service is non-excludable if non-paying consumers cannot be prevented from accessing it.

Lifeboat ethics

Lifeboat ethics is a metaphor for resource distribution proposed by the ecologist Garrett Hardin in 1974.

Global commons is a term typically used to describe international, supranational, and global resource domains in which common-pool resources are found. Global commons include the earth's shared natural resources, such as the high oceans, the atmosphere and outer space and the Antarctic in particular. Cyberspace may also meet the definition of a global commons.

Common good (economics) economics

Common goods are defined in economics as goods that are rivalrous and non-excludable. Thus, they constitute one of the four main types based on the criteria:

A resource is a source or supply from which a benefit is produced and that has some utility. Resources can broadly be classified upon their availability — they are classified into renewable and non-renewable resources. Examples of non renewable resources are coal, crude oil etc. Examples of renewable resources are air, water, natural gas, wind, solar energy, etc. They can also be classified as actual and potential on the basis of level of development and use, on the basis of origin they can be classified as biotic and abiotic, and on the basis of their distribution, as ubiquitous and localized. An item becomes a resource with time and developing technology. Typically, resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable. Benefits of resource utilization may include increased wealth, proper functioning of a system, or enhanced well-being. From a human perspective, a natural resource is anything obtained from the environment to satisfy human needs and wants. From a broader biological or ecological perspective, a resource satisfies the needs of a living organism.

Common heritage of mankind

Common heritage of mankind is a principle of international law that holds that defined territorial areas and elements of humanity's common heritage should be held in trust for future generations and be protected from exploitation by individual nation states or corporations.

Overexploitation Depleting a renewable resource

Overexploitation, also called overharvesting, refers to harvesting a renewable resource to the point of diminishing returns. Continued overexploitation can lead to the destruction of the resource. The term applies to natural resources such as: wild medicinal plants, grazing pastures, game animals, fish stocks, forests, and water aquifers.

The commodification of water refers to the process of transforming water, especially freshwater, from a public good into a tradable commodity also known as an economic good. This transformation introduces water to previously unencumbered market forces in the hope of being managed more efficiently as a resource. The commodification of water has increased significantly during the 20th century in parallel with fears over water scarcity and environmental degradation. Central to its emergence was the view that public provision of water and government regulation of environmentally damaging behavior was ineffective. Commodification has its theoretical roots in neoclassical discourse whereby a good or service is assigned an economic value which prevents misuse. The commodification of water, although not a new phenomenon, is considered part of a more recent market-based approach to water governance which provokes both approval and disapproval from a range of stakeholders. Through the establishment of private property rights and market mechanisms it is argued that water will be allocated more efficiently. Karen Bakker describes this market-based approach proposed by neoliberals as "market environmentalism": a method of resource regulation that promises economic and environmental objectives can be met in tandem. To this extent the commodification of water can be viewed as an extension of capitalist and market tendencies into new spaces and social relations. Karl Marx termed this phenomenon, "primitive accumulation". For this reason there remains serious doubt as to whether commodification of water can help improve access to freshwater supplies and conserve water as a resource.

References

  1. 1 2 3 4 5 6 7 Hardin, G. (1985). Filters Against Folly, How to Survive despite Economists, Ecologists, and the Merely Eloquent, Viking Penguin, ISBN   0-670-80410-X
  2. Hardin, G. (1968). The Tragedy of the Commons. Science162, 1243–1248. doi : 10.1126/science.162.3859.1243
  3. 1915-2003., Hardin, Garrett (1993). Living within limits : ecology, economics, and population taboos. New York: Oxford University Press. ISBN   978-0195093858. OCLC   26586955.
  4. 1 2 3 4 5 6 7 8 Loaiciga, Hugo (April 2004). "Analytic game—theoretic approach to ground-water extraction". Journal of Hydrology. 297 (1–4): 22–33. Bibcode:2004JHyd..297...22L. doi:10.1016/j.jhydrol.2004.04.006.
  5. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Aram, John (April 1989). "The Paradox Of Interdependent Relations In The Field Of Social Issues in Management". The Academy of Management Review. 14 (2): 266–283. doi:10.5465/amr.1989.4282119. JSTOR   258420. ProQuest   210948824.