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Common good (economics)

From Wikipedia, the free encyclopedia

Wild fish are an example of common goods. They are non-excludable, as it is impossible to prevent people from catching fish. They are, however, rivalrous, as the same fish cannot be caught more than once.
Wild fish are an example of common goods. They are non-excludable, as it is impossible to prevent people from catching fish. They are, however, rivalrous, as the same fish cannot be caught more than once.

Common goods (also called Common resources[1]) 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:

  • whether the consumption of a good by one person precludes its consumption by another person (rivalrousness)
  • whether it is possible to prevent people (consumers) who have not paid for it from having access to it (excludability)

People tend to overuse the common goods because there is no charge for using them. Accordingly policymakers use numerous strategies to restrict exploitation of common goods. Typical instances are fish in the ocean or congested non toll roads.[1]

Characteristics of common goods

Based on the criteria, common goods are:

  • rivalrous: When one person consumes a good he reduces the amount or ability everyone else can consume the good. (Fisherman catches the fish which cannot be caught by anyone else and the number of fish in the ocean will decrease.)
  • non-excludable: There is no possibility to exclude anybody from consumption of this good.

Common goods can be institutions, facilities, constructions or nature itself. As long as it can be used by all members of society and not privately consumed by specific individuals or not all parts of society as private goods.

For common goods to be able to exist, in most cases payment of taxes is needed, as common goods are socially beneficial and everyone is interested in satisfy some considered basic necessities. As the government is commonly the agent who drives expenses to create common goods, the community pays an amount in exchange.

A society requires to have certain elements in order to succeed in the creation of common goods. Developed countries normally share those elements such as being a democracy and having basic rights and freedoms, a transportation system, cultural institutions, police and public safety, a judicial system, an electoral system, public education, clean air and water, safe and ample food supply, and national defense.

A common problem with the common goods today is that its existence affects society as a whole, so we must all make a sacrifice to create a common good. Society then have to choose between the interest of a few or the sacrifice of all.

Accomplishing a common good has consistently required a level of individual penance. Today, the compromises and forfeits important for the benefit of everyone regularly include paying taxes, tolerating individual bother, or surrendering certain advantages and cultural beliefs. While infrequently offered intentionally, these penances and compromises are generally joined into laws and public policy. Some cutting-edge instances of the benefit of all and the penances associated with accomplishing them are:

  • Public Infrastructure Improvement: Usually the improvement of highways, water, sewer and power lines require the addition or increase of taxes, as well as the use of eminent domain.
  • Civil Rights and Racial Equality: Even though inequality and racial disparities must move in the way to seize to exist, vestiges of privileges for a fraction of the society still exist and had been progressively eliminated by new laws.
  • Environmental Quality: New laws and movements increase regarding the global environmental problem as a healthy environment benefit the common good and now it isn’t going to be only a matter of a few.

History

Despite its growing importance in modern society, the concept of the common good was first mentioned more than two thousand years ago in the writings of Plato, Aristotle, and Cicero. Regardless the time period Aristotle described the problem with common goods accurately: “What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.”[1] As early as the second century AD, the Catholic religious tradition defined the common good as “the sum of those conditions of social life which allow social groups and their individual members relatively thorough and ready access to their own fulfilment.”

In later centuries, philosophers, politicians and economists have referred to the concept of common good such as Jean-Jacques Rousseau, in his 1762 book "The Social Contract". The Swiss philosopher, writer, and political theorist argues that in successful societies, the “general will” of the people will always be directed toward achieving the collectively agreed common good. Rousseau contrasts the will of all—the total of the desires of each individual—with the general will—the “one will which is directed towards their common preservation and general well-being.” Rousseau further contends that political authority, in the form of laws, will be viewed as legitimate and enforceable only if it is applied according to the general will of the people and directed toward their common good.

Adam Smith also referred to common goods in his book “The Wealth of Nations”, as individuals moved by an “invisible hand” to satisfy their own interests serve the purpose of the common good. He advocated that in order to realize common interests, society should shoulder common responsibilities to ensure that the welfare of the most economically disadvantaged class is maintained.

This view was later shared by the American philosopher John Rawls, who in his book “Theory of Justice” believes that public good is the core of a healthy moral, economic and political system. Rawls defined the common interest as “certain general conditions that are … equally to everyone’s advantage.”

In this case, Rawls equates the common interest with the combination of social conditions for the equal sharing of citizenship, such as basic freedom and fair economic opportunities.

Examples

Congested roads - Roads may be considered either public or common resources. Road is public good whenever there is no congestion, thus the use of the road does not affect the use of someone else. However, if the road is congested, one more person driving the car makes the road more crowded which causes slower passage. In other words, it creates a negative externality and road becomes common good.[1]

Clean water and air - Climate stability belongs to classic modern examples.[2] Water and air pollution is caused by market negative externality. Water flows can be tapped beyond sustainability, and air is often used in combustion, whether by motor vehicles, smokers, factories, wood fires. In the production process these resources and others are changed into finished products such as food, shoes, toys, furniture, cars, houses and televisions.

Fish stocks in international waters - Oceans remain one of the least regulated common resources.[1] When fish are withdrawn from the water without any limits being imposed just because of their commercial value, living stocks of fish are likely to be depleted for any later fishermen. This phenomenon is caused by no incentives to let fish for others. To describe situations in which economic users withdraw resources to secure short-term gains without regard for the long-term consequences, the term tragedy of the commons was coined. For example, forest exploitation leads to barren lands, and overfishing leads to a reduction of overall fish stocks, both of which eventually result in diminishing yields to be withdrawn periodically.

Other natural resources - Another example of a private exploitation treated as a renewable resource and commonly cited have been trees or timber at critical stages, oil, mined metals, crops, or freely accessible grazing.

Debates about sustainability can be both philosophical and scientific.[3][4][5] However, wise-use advocates consider common goods that are an exploitable form of a renewable resource, such as fish stocks, grazing land, etc., to be sustainable in the following two cases:

  • As long as demand for the goods withdrawn from the common good does not exceed a certain level, future yields are not diminished and the common good as such is being preserved as a 'sustainable' level.
  • If access to the common good is regulated at the community level by restricting exploitation to community members and by imposing limits to the quantity of goods being withdrawn from the common good, the tragedy of the commons may be avoided. Common goods that are sustained through an institutional arrangement of this kind are referred to as common-pool resources.

Tragedy of the commons

Tragedy of commons is an economic problem describing that the common goods are overused by the society as a whole which leads to destruction of the resource.

Example

There is a standard example to understanding this concept. Collective ownership of land exists. This land is used by several shepherds and their sheep. Everything works but each rational shepherd wants to increase his gain by reaching his herd larger. This change brings shepherd a higher utility than one sheep makes as a negative utility imaginable as additional reduction of quality of land. An increasing population of sheep results in the tragedy that land becomes barren.[1][6]

Possible solutions

This exemplary problem could be solved in various ways. The land can be divided into smaller private grounds. Each shepherd will have incentives to reinvest in maintaining his land in order to sustainable business.

Next solution is government intervention. Right to use the land can be allocated, the number of sheep in every herd can be regulated or externality made by sheep can be internalized by taxing sheep.[1]

Last but not least collective solution can help to prevent overuse of resource. It is based on cooperation of shepherds and government (in example feudal lords). Crop rotation, seasonal grazing and controlling the use of herders can prevent annihilations of resource. In many cases assess to resource is limited to those who are members of the group agreement which is able to transform common good into club good.[7]

Common goods and normal goods

Normal goods are goods which consumption increase as income increases. The demand function of a normal good is downward sloping, meaning that an increase in price for normal goods produce a decrease in its consumption. In other words, price elasticity of demand is negative for normal goods. Common goods mean that demand and price change in the opposite direction. If something is a normal goods, then the consumer's demand for the goods and the consumer's income level change in the same direction. At this time, the substitution effect and income effect will strengthen each other, so the price change will lead to the opposite direction of demand change. Then the goods must be a common goods, so the normal goods must be a common goods.

Other goods

Rivalrous Nonrivalrous
Excludable Private Goods Club Goods
  • Fire protection
  • Cable TV
  • Uncongested toll roads
Non-excludable Common Resources
  • Fish in the ocean
  • The environment
  • Congested nontoll roads
Public Goods

In addition to common goods, there are three other kinds of economic goods, including public goods, private goods, and club goods. Common goods that a businessman gives a thumbs up can include international fish stocks and other goods. Most international fishing areas have no limit on the number of fish that can be caught. Therefore, anyone can fish as he likes, which makes the good things not excluded. However, if there are no restrictions, fish stocks may be depleted when other fishermen arrive later. This means that fish populations are competitive. Other common commodities include water and game animals.

Public goods

In many cases, renewable resources, such as land, are common commodities but some of them are contained in public goods. Public goods are non-exclusive and non-competitive, meaning that individuals cannot be stopped from using them and anyone can consume this good without hindering the ability of others to consume them. These include aviation, national defense, national parks, or firework displays. Public goods can also suffer from the Free-Rider problem. [1]

Private goods

Private goods are excludable goods, which prevent other consumers from consuming them. Private goods are also rivalrous because one good in private ownership cannot be used by someone else. That is to say, consuming some goods will deprive another consumer of the ability to consume the goods. Private goods are the most common type of goods. They include what you have to get from the store such as furniture, cars, food, clothes, books and so on.

Club goods

Club goods, or collective goods, are excludable but not rivalrous in the consumption. That is, not everyone can use the good, but when one individual has claim to use it, they do not reduce the amount or the ability for others to consume the good. By joining a specific club or organization we can obtain club goods; As a result, some people are excluded because they are not members. Club goods can include cable TV, golf courses, cinemas, and any merchandise provided to club members.

Economists set these categories for these goods and their impact on consumers. The government is usually responsible for public goods and common goods, and enterprises are generally responsible for the production of private and club goods. But this pattern does not fit for all the goods as they can intermingle.

See also

References

Citations

  1. ^ a b c d e f g Mankiw, N.Gregory (2015). Principles of Economics (7th ed.). USA: Cengage Learning, Inc. pp. 215–229. ISBN 978-1-285-16587-5.
  2. ^ "Dimitrova, A., Hollan, K., Laster, D., Reinstaller, A., Schratzenstaller, M., Walterskirchen, E., Weiss, T. 2013 (September). Literature review on fundamental concepts and definitions, objectives and policy goals as well as instruments relevant for socio-ecological transition Working, Paper no 40, accessed May 14, 2015" (PDF). Archived from the original (PDF) on March 6, 2016. Retrieved May 15, 2015.
  3. ^ Isik, J. 2011 (5 December ). Sustainability: A Number of Policy Points Focusing on the Environment and Global Warming, Social Europe, accessed May 14, 2015 Archived April 14, 2015, at the Wayback Machine
  4. ^ Rawsthornjan, A. Debating Sustainability, January 31, 2010
  5. ^ "OConnor, N. From Conspicuous Consumption to Collective Consumption, 1 December 2011". Archived from the original on 18 May 2015. Retrieved 15 May 2015.
  6. ^ Hardin, Garrett (1968-12-13). "The Tragedy of the Commons". Science. American Association for the Advancement of Science. 162 (3859): 1243–1248. doi:10.1126/science.162.3859.1243. eISSN 1095-9203. ISSN 0036-8075. PMID 5699198.
  7. ^ Staff, Investopedia. "Tragedy Of The Commons Definition". Investopedia. Retrieved 2021-04-30.

Bibliography

Hardin, Garrett (1968-12-13). "The Tragedy of the Commons". Science. American Association for the Advancement of Science. 162 (3859): 1243–1248. doi:10.1126/science.162.3859.1243. ISSN 0036-8075. PMID 5699198.

Mankiw, N.Gregory (2015). Principles of Economics (7th ed.). USA: Cengage Learning, Inc. ISBN 978-1-285-16587-5.

Ostrom, Elinor; Roy, Gardner; Walker, James (1994). Rules, games, and common-pool resources. United States of America: University of Michigan Press. ISBN 0-472-09546-3.

Tirole, Jean (2017). Economics for the Common Good. USA, New Jersey: Princeton University Press. ISBN 978-0-691-17516-4.

This page was last edited on 11 May 2021, at 04:48
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