Tragedy of Commons
Elinor Ostrom died recently. Her work on the tragedy of the commons earned her the Nobel Prize.
The tragedy of the commons is a term coined by scientist Garrett Hardin in 1968, describing what can happen in groups when individuals act in their own best self-interests and ignore what’s best for the whole group. A group of herdsmen shared a communal pasture, so the story goes, but some realised that if they increased their own herd, it would greatly benefit them. However, increasing your herd without regard to the available resources brings unintentional tragedy through overgrazing and destruction of the common grazing area, an unintentional tragedy.
The tragedy of the commons can be considered in relation to environmental issues, such as sustainability. The commons dilemma stands as a model for a great variety of resource problems in society today, such as water, land, fish and non-renewable energy sources, such as oil and coal.
Elinor’s solutions linked to Polycentrism dictates dispersing the centers of power to more locations as opposed to a national or global approach that keeps policy control in fewer places.
This requires “complex, multi-level political-economic-social systems to cope” because action must be taking place all over. Spreading out decision making for global climate issues is important because “if there are externalities that can happen at multiple scales, then taking action that affects multiple scales can have an impact”. Polycentric governance seemed like a nested, layered or hierarchal structure.
Though there is no published overlap between Herbert Simon’s (Nobel Prize 1978) work on complexity and Elinor’s work on Polycentrism, which can manage the complexity associated with governing commons. But Polycentricism seemed like Simon’s complex systems. According to Simon, complex systems were composed of subsystems that, in turn, have their own subsystems, and so on. Complexity frequently takes the form of hierarchy. He also said that hierarchic systems have common properties that are independent of their specific content.
This brings us to another question. Is the market itself a complex, common prone to a tragedy? Simon said subsystems of a complex system were relatively connected. This has a start similarity to stock markets where on the one side we have a component interaction in a sector, intermarket interaction between sectors and then between assets and so on. Complexity like Simon said had common properties irrespective of content. Whether complexity was price based, biological or psychological, there was a natural order to complexity.
Where does this lead us? It leads us to questioning whether our understanding of markets, related to an index, a stock or a group of assets was new age or stone-age? Can our research tools see the big picture? Can they visualise the interaction intra and inter sub systems? Is this lack of visual conception the reason society finds it hard to measure and comprehended market risk?
Last but not the least, our discussion brings us to the biggest global economic common, “cash” or “credit”. We are living such textbook times that it seems history is unfolding in front of us. The debasing of cash and controlling of interest rates has made market an overgrazed communal pasture, where the only reality is a tragedy.
- Umesh Shanmugam