The village of Upper Bigglesworth has a village “commons,” a
piece of land on which each villager, by law, is free to graze his
or her cows. Use of the commons is measured in units of the
number of cows grazing on it. Assume that each resident has
a constant marginal cost of sending cows to graze (that is, the
marginal cost is the same, whether 1 or 10 cows are grazing).
But each additional cow grazed means less grass available for
others, and the damage done by overgrazing of the commons
increases as the number of cows grazing increases. Finally,
assume that the benefit to the villagers of each additional cow
grazing on the commons declines as more cows graze, since
each additional cow has less grass to eat than the previous one.
a. Is the commons excludable or nonexcludable? Is it rival
in consumption or nonrival? What kind of good is the
commons?
b. Draw a diagram, with the quantity of cows that graze
on the commons on the horizontal axis. How does the
quantity of cows grazing in the absence of government
intervention compare to the efficient quantity? Show both
in your diagram.
c. The villagers hire you to tell them how to achieve an efficient use of the commons. You tell them that there are
three possibilities: a Pigouvian tax, the assignment of
property rights over the commons, and a system of tradable licenses for the right to graze a cow. Explain how
each one of these options would lead to an efficient use
of the commons. Draw a diagram that shows the
Pigouvian tax.