Next class: Mid term test (2 hours) 20 multiple choice questions (30%) ALL readings (anything is fair game from the readings) Spencer Well’s (from Pandora’s seed) & Robbins et al, Chapter 1,2,3 & 4 3 essays questions relating the readings and to what we’ve discussed in class (70%) Market based Environmentalism & “Institutions and the commons”.. The prisoner’s dilemma I know the bugger & his buddy did it, but I need hard evidence to • A theoretical game in which a particular action would benefit all, but make them do “hard” time individuals behaving selfishly will create a situation that is not optimal for everyone. Interrogator has evidence that you committed one crime, but suspects strongly that you and your “partner in crime” were responsible for many more.. (you are being kept in isolation and have no way of communicating with partner). Current situation: You will spend 1 year in prison for the crime committed., unless.. If you “provide evidence” against your colleague on the other crimes, you can get a reduced sentence (probation: no prison) Your colleague will do the hard time (5 years of prison)… What do you do? Figure 4.1: The prisoner’s dilemma The best outcome for the two prisoners involved? Shut up and “cooperate” TOTAL TIME IN PRISON 2 years (1 year each) If both pursue “self interest” assuming that the other doesn’t.. Worst case scenario.. Best rational outcome for either prisoner: Rat out the colleague, other one shuts up TOTAL TIME IN PRISON 5 years (5 years for one, 0 for the other) And if both “rat out” their partner… worst case scenario for them, right? Total time in prison 10 years (5 years each) The tragedy of the commons • The ecologist Garrett Hardin theorized the tragedy of the commons as a particular type of prisoner’s dilemma This is a situation where individuals acting independently and rationally according to their own self-interest behave contrary to the best interests of the whole by depleting some common resource. Providing a bit of context: Main stream economics: Adam Smith 18th century economist Free market capitalist promotes economic prosperity for all.. If everyone works hard to promote their own self interest,.. through markets and exchange, everyone benefits.. “Ethical foundation for capitalism???” Adam smith makes reference to the “invisible hand” of free markets, as a metaphor to describe unintended social benefits resulting from individual actions. The tragedy of the commons An example of a type of market failure clear contradiction of “Adam Smith”.. Prior to the 19th century: Custom in many English village to let their cattle, livestock graze freely on the “commons” The term “commons” derives from traditional English legal term of “common land” This land might have been owned “collectively” by the village or by “the crown” without clear ownership or regulation.. For millennium, farmers/peasants would graze their livestock, hunt, collect wild plants, etc.. THE PROBLEM: Everyone has access to a commonly held pasture No rules about sustainable numbers for grazing Each herder benefits more from adding more animals (cost to farmer is zero) Nobody has an “private” incentive to stop overgrazing,.. In fact, if you don’t use it, your neighbor will.. The land belongs to everyone, so in a sense it belongs to nobody.. Over the longer term: land can no longer sustain grazing animals, and everyone loses.. Nice place for a hike, with nice views.. 1000 years ago, the UK was covered with forest Major deforestation due to “pastoral agricultural” which continues through to the present.. Common Access Resources: Shared and unregulated resources available to all, but owned by none? No private ownership, and no system for managing the resource.. Fish in the sea? Forests? Atmosphere? Note: 11% of Canada’s land mass is privately owned.. Rivers, lakes? The following video clip is put together by an “economist” with an interest in Markets and the Environment Elaborates on the problem: “The Tragedy of the Commons”.. In this video, he distinguishes between: Private costs for a producer of a good, service, or activity which includes the costs the firm pays to purchase capital equipment, hire labor, and buy materials or other inputs. External costs, costs which are not reflected on firms’ income statements or in consumers’ decisions, but very real nevertheless! These external costs remain important to society overall, regardless of who pays for them. E.g. a Company saves money by not installing water pollution control equipment. Because of the firm’s actions, cities located down river will have to pay to clean the water before it is fit for drinking, the public may find that recreational use of the river is restricted, and the fishing industry may be harmed. Social costs include both the private costs and any other external costs to society arising from the production or consumption of a good or service. Social costs of production” (i.e. private costs & externalities) Don’t worry about the technicalities/diagrams here in terms of economics in this clip.. https://www.youtube.com/watch?v=NZAwGoIAFgM Fisheries (as an example of the “Tragedy of the Commons” Let’s consider Newfoundland’s Cod Fisheries.. Basque and Portuguese Fishers, evidence going back as far as the 15th century Employed 1000s of Newfoundlanders, from the 19th century onward!! Until the 1950s, largely smaller scale operations.. Sustainable & labour intensive.. 1960s onwards: Trawling fleets from around the world. Most vessels came from North America and Europe – primarily the Soviet Union, Spain, France, and Portugal – although smaller numbers also arrived from Asia, the Caribbean, and elsewhere. Technologies evolved with massive engine power vessels and frozen food compartments aboard ships. Engine power vessels had larger nets, larger engines, and better navigation. The capacity to catch fish became limitless. In addition, sonar technology gave an edge to catching and detecting fish. Sonar was originally developed during World War II to locate enemy submarines, but was later applied to locating schools of fish. These new technologies, as well as bottom-trawlers that destroyed entire ecosystems, were vastly different from old techniques used, such as hand lines and long lines. Thinking of the fisheries: Private costs were low and the cod were treated like a “global commons” Demand was increasingly driven by a world wide market Population and “demand” increases, so too does price, and hence: more fishing.. Trawlers (1960s onwards) from the Soviet Union and its satellite countries, Great Britain, Spain, Portugal, Japan, and Canada Note: Canada (via a UN treaty) extended a 200-mile limit in 1977, limiting the fisheries to solely Canadian fishers in parts (yet not all) the Grand Banks But,.. Too late! Complete collapse of the fishery, because of “little regulation”,.. .. Tragedy of the commons.. Various competing interests, yet nobody taking into consideration the true social costs of fishing.. Which includes its long term sustainability.. Added complication: Ignorance and Politics: Nobody really had a clear sense as to how “limited” the resource might be… How sustainable were current practices.. Scientists, the public, fishers and politicians debated what the limit to “catches” might Even among those that are highly concerned and be right to the end.. & all grossly overestimated the capacity of our oceans to sustain informed: heavy fishing “UNCERTAINTY” among “scientists” and “experts”>>> -> leading to a lack of political will. Moratorium on fishing cod within Canadian waters since about 1992 This lead to one of the largest industrial closure in Canadian history. In Newfoundland alone, over 100,000 persons (fishers, plant workers & their families were directly impacted and it had a devastating impact on over 400 coastal communities.. The tragedy of the commons: Hardin’s solutions • Hardin says that since people will act in their own interested, there are only two solutions: 1. Privatization 2. Enforcement of regulations/restrictions (coercion?) • Hardin prefers privatization • individuals have incentive to manage property sustainably, they are the only ones hurt by their actions • Hardin’s theory is widely accepted, so many environmental issues are managed either through strict regulation or privatization • Let’s consider another example, while thinking of potential “market based” interventions to deal with the problem The “atmosphere” as our “global commons”.. Greenhouse gases as “externalities” since most polluters (individuals and industry) do not consider them as part of their “private costs”.. Why do we consider the atmosphere as our “global commons”? Obviously: Carbon dioxide does not stay in place Emissions come from a set of locations, but the impacts are shared (unevenly) by all Owned by all, but by no one.. How do we control carbon? How can cooperation be achieved? Controlling carbon? Though long promised, the Harper Government refused to impose greenhouse gas regulations on the oil sands – the fastest growing source of emissions – or indeed on any industrial source other than coal-fired power. Why? Direct quote: “In fact, Mr. Speaker, nobody in the world is regulating their oil and gas sector. I would be delighted if they did. Canada would be there with them. However, we will not impose unilateral penalties.” Won’t act without uniform actions south of the boarder (U.S.) Similar position on China, India, among other major emitters.. Harper’s logic for doing nothing 1. Canada is a “resource based economy” (including energy!!), and we must build on our strengths.. (obviously, not everyone agrees with this assessment). 2. More fundamentally, Canada acts unilaterally on “greenhouse gases” our economy faces a “competitive disadvantage”.. Assume Government regulates: … all production must convert as quickly as possible to cleaner forms of energy and cleaner technology.. Inevitably: “Costs” to producers increases in Canada as we are also considering the social costs of production (i.e. the long term sustainability of economic activity, given the potential risks & costs of climate change” Recall: Fossil fuels (Oil, Natural Gas, Coal) all tend to be much cheaper than “renewable energy” (wind; solar).