Consider a large tract of land that is used for grazing sheep. Now consider two different property ownership regimes: common property ownership, in which all shepherds have unrestricted access to the land, and private property ownership, in which there is a single landowner who hires shepherds up until the point where their wage is equal to the marginal product of their labor. Show graphically how common property resource ownership can lead to overgrazing (too many shepherds using the same open-access rangeland) in the absence of institutional constraints that would ensure an efficient level of resource usage. Contrast this with private property ownership. On your graph, label the axes, the average and marginal products of labor, the wage, scarcity rents, the efficient number of shepherds, and the number that would be expected under common property ownership. Explain the source of the inefficiency. Would privatization be equitable? Would it be possible to achieve an efficient resource allocation without resorting to privatization?
Consider a large tract of land that is used for grazing sheep. Now consider two different
property ownership regimes: common property ownership, in which all shepherds have
unrestricted access to the land, and private property ownership, in which there is a single
landowner who hires shepherds up until the point where their wage is equal to the marginal
product of their labor. Show graphically how common property resource ownership can lead to
overgrazing (too many shepherds using the same open-access rangeland) in the absence of
institutional constraints that would ensure an efficient level of resource usage. Contrast this with
private property ownership. On your graph, label the axes, the average and marginal products of
labor, the wage, scarcity rents, the efficient number of shepherds, and the number that would be
expected under common property ownership. Explain the source of the inefficiency. Would
privatization be equitable? Would it be possible to achieve an efficient resource allocation
without resorting to privatization?
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