Multiple Choice
Making customers pay per use of a public good is inefficient because:
8. The Types of Goods
The Free Rider Problem and the Tragedy of the Commons
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In the case of a shared pasture, what is the rational strategy of herdsmen acting in their own best interests?
A
Have fewer cows
B
Buy more cows
C
Have the same amount of cows as your neighbor
D
None of the above
Verified step by step guidance1
Understand the concept of the 'Tragedy of the Commons', which occurs when individuals, acting in their own self-interest, deplete a shared resource, leading to a worse outcome for the group.
Recognize that in a shared pasture, each herdsman benefits individually from adding more cows, as they receive the full benefit of each additional cow while the cost of overgrazing is shared among all herdsmen.
Consider the incentives: Each herdsman is motivated to increase their herd size to maximize personal gain, even though collectively this leads to overgrazing and depletion of the pasture.
Analyze the situation using game theory: The dominant strategy for each herdsman is to add more cows, as this maximizes their individual payoff regardless of what others do.
Conclude that the rational strategy for herdsmen, acting in their own self-interest, is to buy more cows, despite the negative long-term consequences for the shared resource.
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