IB Economics SL & HLTopic 2.8 — Externalities & Common Pool ResourcesPaper 1 & 2Core idea~11 min read
Common Pool Resources and the Tragedy of the Commons
Nobody owns the ocean. Nobody owns the atmosphere. That sounds generous until you notice what it means in practice: every fish you leave in the water is a fish somebody else will take, so the sensible thing for each person is to take it first. Repeat that logic across everyone and the resource disappears.
📚 What you need to know
A common pool resource is non-excludable but rivalrous.
Non-excludable: nobody can be stopped from using it, usually because nobody owns it.
Rivalrous: it can be used up, so what one person takes another cannot have.
The tragedy of the commons is the over-use that follows when everyone acts in their own interest.
It shows up as a negative externality of production: MSC lies above MPC and output goes past Qopt.
Examples: ocean fisheries, grazing land, rivers, forests, clean air.
Responses include quotas and rules, tradable permits, giving out property rights, collective self-governance, and international agreements.
Two words that do all the work
Everything about this topic follows from the pair of properties. Take them one at a time.
Non-excludable means the price mechanism cannot ration the resource. You cannot charge a boat for the fish it takes from international waters, because you cannot keep it out.
Rivalrous means the resource is finite. Every tonne caught is a tonne nobody else can catch, and a tonne that will not breed next year.
Put them together and you get the trap. If the resource were only non-excludable but not rivalrous — like street lighting — over-use would not matter. If it were rivalrous but excludable — like a bag of rice — the owner would protect it. It is the combination that is fatal.
The trap in one line
the gain from taking one more is all yours • the cost of the resource shrinking is shared by everyone
This is why “just ask people to use less” so rarely works. A fisher who cuts their catch loses income today and the stock still collapses, because everyone else took the fish anyway. Restraint only pays if everyone is held to it.
On the diagram it is a production externality
Unsustainable use of a common pool resource creates external costs: depleted stocks, damaged habitats, and a resource that future generations will not have. So the diagram is the familiar one, with MSC above MPC.
Qopt here has an extra meaning: it is the catch the stock can actually replace each year. Go past it and you are eating next year’s fish.
What over-use looks like over time
The static diagram hides the scariest part. A common pool resource does not just sit at Qe forever. Every year of over-use leaves a smaller stock, which breeds less, which makes the following year worse. The decline speeds up.
The red line is what makes this different from ordinary pollution. Over-use today permanently reduces what is available tomorrow.
Sustainability, in exam language: using a resource in a way that meets today’s needs without stopping future generations meeting theirs. That is exactly what open access fails to do.
What can be done
Response
How it helps
Where it struggles
Quotas and rules
Sets a legal catch or extraction limit at the sustainable level
Needs enforcement at sea or in remote forest, which is expensive
Property rights
An owner has a reason to protect the resource for the long term
Some resources, such as the atmosphere, cannot be owned by anyone
Tradable permits
Caps total use and lets the permits go to whoever values them most
Setting the cap requires data nobody quite has
Collective self-governance
The community that depends on the resource agrees and polices its own limits
Falls apart against powerful or armed outsiders
International agreements
The only option when the resource crosses borders
No real penalty for a country that withdraws
Worked examples
WORKED EXAMPLE
Is the catch sustainable?
A fishery can replace 8,000 tonnes a year. Twelve boats fish it, each landing 900 tonnes. Calculate the total catch and comment on it. [3]
Step 1: Total catch12 × 900 = 10,800 tonnesStep 2: Compare with what the stock replaces10,800 − 8,000 = 2,800 tonnes over the limitOver-fishing by 2,800 tonnes a yearStep 3: Comment
The stock shrinks every year, so next year’s sustainable catch will be smaller than 8,000.
this is why the decline accelerates rather than staying steady
WORKED EXAMPLE
Why each boat keeps fishing
Sending out one extra boat earns its owner $60,000 a year. It reduces the catch of each of the other 10 boats by $9,000. Explain why the boat still goes out. [4]
Step 1: Private gain+$60,000 to the ownerStep 2: Cost imposed on everyone else10 × 9,000 = $90,000Step 3: Net effect on the group60,000 − 90,000 = −$30,000The group loses $30,000, but the owner gains $60,000Step 4: The conclusion
The owner keeps all the gain and carries none of the shared cost, so sending the boat out is rational for them and damaging for everyone.
this gap between private and social is the tragedy of the commons in numbers
WORKED EXAMPLE
How long until the stock halves?
A forest holds 100,000 usable trees and regrows 10,000 a year. Logging removes 18,000 a year. How long before the stock has halved, assuming regrowth stays constant? [3]
Step 1: Net change each year18,000 − 10,000 = 8,000 trees lost per yearStep 2: How many trees to losehalf of 100,000 = 50,000Step 3: Divide50,000 ÷ 8,000 = 6.25About 6 years and 3 monthsin reality regrowth falls as the forest thins, so the true answer is sooner
💡 Exam tip
Define a common pool resource using both words: non-excludable and rivalrous. One on its own is not enough.
Draw it as a negative externality of production diagram. That is the standard expected answer.
Name a real case — ocean fisheries, deforestation, over-grazed land, river extraction, air pollution.
Use the word sustainability and link it to future generations.
The strongest evaluation point is enforcement: a rule that cannot be policed changes nothing.
Watch the wording. “Common pool resource” and “public good” both involve non-excludability, but only one is rivalrous.
⚠ Common mix-up
Calling a common pool resource a public good. Public goods are non-rival. Common pool resources get used up. That single difference causes the tragedy.
Saying people are being greedy or stupid. They are responding sensibly to the incentives in front of them. That is the point.
Drawing it as a consumption externality. The harm comes from extraction, so supply splits.
Assuming property rights always fix it. They help for land and forests, and are useless for the open ocean or the atmosphere.
Forgetting the time dimension. The damage compounds. A static diagram alone understates it.
Believing an international agreement solves the problem once signed. Countries can and do walk away.
Up next: Government Responses to Market Failure — the full toolkit, and how each tool moves a diagram back towards Qopt.
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