Are all commons tragedies? The Case of Bison in the Nineteenth Century.

• Author: Hill, Peter J.
• Position: Essay

Economists tend to rely upon tried and true examples to make their theoretical points. Since H. Scott Gordon's 1954 article "The Economic Theory of a Common-Property Resource: The Fishery," economists have recognized that the overexploitation of an open-access resource--the "tragedy of the commons"--arises when individuals' incentives aren't aligned with maximizing the overall gains to society. Gordon's model has been widely applied, and the near extinction of the bison on the American frontier has been frequently held up as a confirmation of the model.

However, just as Ronald H. Coase (1974) showed that a lighthouse is not the best example of a public good, and Steven Cheung (1973) explained that bees, in most cases, do not provide an unpriced externality, we also need to rethink how we present the overexploitation of open-access resources and its applicability to bison. In particular, economists should be careful not to ignore an important element in our tool kit, opportunity costs, when we discuss overexploitation. This means that the rapid depletion of a particular resource may or may not represent a tragedy of the commons, depending on alternative uses of all the scarce resources in question.

In this article, I argue that the iconic depletion of the bison in nineteenth-century America was not a tragedy of the commons. First, because bison were a means of converting grass to meat, one has to include the opportunity cost of the grass in any calculations of the wastefulness of killing bison. If an alternative way of using grass existed, and it did in the form of domesticated cattle, then depletion of the bison was not necessarily wasteful. In addition, open access can also lead to dissipation of rents through the excessive use of resources in harvesting. (1) But it does not appear that there was a substantial waste of resources in the bison-harvesting activity itself. Finally, if there is a lag between the presence of a less-efficient method of harvesting grass (bison) and a more efficient converter of grass to meat (cattle), that lag can also represent resource waste. However, data on the lag between the elimination of the large bison herds and the introduction of cattle suggest this wasn't the case. Of course, there is still the question of the amenity (nonconsumptive) value of bison. That issue is dealt with in the last part of the article.

The Theory of Overexploitation

One can understand the problem of not correctly identifying the valuable resource that is being wasted by examining M. Scott Gordon's classic graphical representation of overexploitation (1954, 130). In figure 1, overall gains to society (rents) are maximized at the intersection of the marginal product curve (MP) with the marginal (opportunity) cost curve (MC). The rent rectangle apqc is the greatest gain to society from the activity because the extra benefit of undertaking the activity (the marginal product) exceeds the extra cost of undertaking the activity for every unit of effort up to point x. However, in an open-access situation, harvesters do not stop at point x where rents are maximized. Entry into the market occurs because the entrant's share of the catch is AP (the average product of effort), not MP (the output from one more unit of effort), so output expands until AP = MC, or until rents are entirely dissipated.

The problem with the application of this model to all situations of rapid depletion is that one has to correctly identify the valuable resource. Gordon discusses the particular case where fish are the resource that is being wasted and fish is the most valuable product from the fishery. Even though his exposition may be correct, one cannot apply it to situations where the resource being harvested is not the most valuable one. Bison were valuable for their ability to convert grass to meat, but they were not the most efficient method of doing so. (2)

In figure 1, the rent rectangle represents the maximum profit from the resource--the fish--and the only opportunity cost that is relevant is that of the harvesting effort. But in some cases this approach fails because it ignores the opportunity cost of putting these inputs into alternative uses. In other words, the rent rectangle from harvesting fish has to be compared to the alternative rents from other uses of the ocean. Consider the case of codfish. Some have viewed the rapid depletion of codfish in the early twentieth century as an example of rent dissipation through overuse, but it is important to note that the depletion of cod resulted in an increase in the lobster population (Pease 2009). The better use of the cod's habitat, from the human point of view, may be lobster. Therefore, one should remember that there are opportunity costs in the production of any biological population, and one must take into account those opportunity costs when evaluating the argument that rapid use (3) of the resource represents overuse.

One can formalize overexploitation as the use of a resource, such as bison (B), at time t, even though

DPV[(B).sub.t] > H[(B).sub.t].

DPV(B)t is the discounted present value of a unit of a resource that remains alive at t, and H(B)t is the harvest value of a unit of the resource in year t. The terms exploitation, waste, and rent dissipation can be applied to the harvesting of an animal even though its discounted present value (alive) is greater than its value dead. Of course, the killing of the lower-valued animal rather than waiting until it becomes

more valuable in the future happens because the individual looking at the harvest potential does not have property rights to the discounted present value of future flow of returns from the asset, but can claim the harvest value. However, the discounted present value of the future flow of returns is a net figure:

DPV(B) [n.summation over (t=1)] ([R.sub.t] - [C.sub.t])/[(1 + i).sub.t] (t = 1.... n).

R represents the value in the marketplace for a resource in year t, i is the discount rate, and C is the opportunity cost of the resources necessary to produce the resource in that year. In this article, I focus on C, the opportunity cost of resources necessary for production of the asset, and I illustrate confusion about the tragedy of the commons with a discussion of the American bison. (4) * The resource involved that had an opportunity cost was the grass of the Great Plains, which could be used to produce cattle as well as bison.

Bison as a Tragedy of the Commons

A casual search of environmental and natural-resource texts as well as of standard principles texts shows that the bison are one of the most off used examples of the problems of an open-access resource. For instance, a leading environmental text says:

The problems created by open-access resources can be illustrated by recalling the fate of the American bison. Bison are an example of "common pool" resources. Common pool resources are characterized by non-exclusivity and divisibility .... With all hunters having completely unrestricted access to the bison, the resulting allocation would not be efficient. No individual hunter would have an incentive to protect scarcity rent by restricting hunting effort.... One of the losses from further exploitation which could be avoided by exclusive owners--the loss of scarcity rent due to overexploitation--is not part of the decision-making process of open-access hunters. (Tietenberg and Lewis 2012, 29-30)

And an economics text says, "The sad list of animal species that have been extinguished by man's predation results from the fact that property rights in these animals did not exist, perhaps because they could not have been enforced had they been established, but in any event because they did not exist.... Nobody owned the bison or the passenger pigeon; and in recent years whales and kangaroo have been sadly victimized by the absence of ownership" (Dales 1992, 53).

Similar arguments are made by Randall Holcombe (1988), Michael Copeland (1990, 21), and Robert Higgs (2005). The only dissenter is Dean Lueck (2002). (5) In fact, casual reading of environmental texts and articles and books on property rights indicate that the bison is second only to fish in the ocean as an example of the overexploitation of an open-access resource.

The most complete discussion of the rapid near extermination of the bison is in a recent article by M. Scott Taylor (2011). Taylor argues that the rapid slaughter occurred because of a technological innovation in tanning bison hides in 1870 or 1871 in Germany and England. This innovation created a demand for bison hides, and hunters responded by killing bison just for the hides and shipping them to foreign markets. Taylor concentrates on the technological innovations and market forces that led to the rapid slaughter of the bison. His analysis is thorough and convincing. He errs, though, in the same way that others have in seeing the slaughter as a "dramatic example of resource overuse arising from open access" (3166). He concludes, "The slaughter of the North American buffalo surely represents one of the saddest chapters in American environmental history" (3171).

The belief that the bison were valuable and were nearly exterminated because of the existing institutional framework leads to the claim that if private-property rights to bison had existed, they would have been preserved. I argue that such is not the case; even if there had existed private-property rights to bison on the Great Plains in the latter part of the nineteenth century, they would have been exterminated almost as rapidly as they were under open access. There was no tragedy in an economic sense in the killing of the bison; it was simply a rational economic act by people who wished to maximize the value of the grass on the Great Plains. (6) In fact, the rapid development of the hide market provided a fortunate set of circumstances for the establishment of cattle on the Great Plains. The cattle producers did not have...