This past weekend in his Dear economist column in the Financial Times, Tim Harford takes on the question of how to minimize free riding among roommates who share a refrigerator. Seven students share a house, but only three buy milk; the other four free ride on the others, with no repurcussions:
Free riding is common, but I don’t want to spoil the atmosphere with strict rules and enforcement mechanisms. What course of action would you recommend?
You clearly think that people would never volunteer their fair share of the milk bill, and that the monitoring systems necessary to ensure compliance would be onerous. This is a naive reading of economic theory, because even rational economic agents can gain utility from acting honestly. Your course of action therefore needs to be identified empirically.
and he recommends that the roommates establish a contribution box and an honor system for the free riders to chip in when they drink milk.
I use this example all the time when I am teaching about the “tragedy of the commons”. It is more appropriately called the “tragedy of open access”, because the tragedy arises from a lack of institutions to govern the use of the common-pool resource. I ask how many of them live with roommates. I then have them all tell me how they divide up the refrigerator property rights and the use rights of the food in the refrigerator.
I find that students come up with myriad ways to govern their milk commons: they privatize (use a marker to write your name and date of purchase on the bottle, or assign each roommate a shelf in the refrigerator), they share everything and divide the shopping bill among all roommates, or they come up with institutions to define and enforce their use rights. One institution is the honor system that Tim recommends. Another is to have the roommates take turns buying milk. Another is to have a more formal method for the free riders to pay the purchasers, say, by figuring out the weekly milk budget and dividing it up among the seven roommates. These methods all require a way of defining property rights and use rights, a way for providing the resource, and a way to enforce/penalize non-payers. The forms that these dimensions take will vary depending on community and situation.
Taking a page from Elinor Ostrom, this range of institutions illustrates the continuum from privatization to open access, and where a given community ends up on that continuum depends on the characteristics of that community. Institutional heterogeneity and institutional customization based on local knowledge characterizes successful common-pool resource management.