Monday, August 02, 2010

Gridlock Economy: When Too Much Ownership Kills the Market (Part 1)

I am always happy to find new enlightening ideas, and I found them recently in a book titled "The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives." This book made by Michael Heller, a Law Professor from Columbia Law School, introduces the concept of the tragedy of the anticommons, i.e. a condition where due to over fragmented ownership of a resource (i.e. ownership of a single resource is distributed within too many owners), such resource is highly underused to the extent that it cannot provide any benefits to its owners nor the society. It is the opposite of the tragedy of the commons ("Common Tragedy") where a resource is overused to near extinction because no one have ownership over such resource and therefore no one cares about the sustainability of such resource.

In Part 1 of this Article, we will discuss the basic concepts of the Common Tragedy and the Anticommon Tragedy. Later in Part 2, we will discuss further issues related to Anticommon Tragedy and the proposed solution to solve such issues.

A. The Common Tragedy: What and Why?

First thing first, the concept of Common Tragedy is made on a solid logical foundation. Imagine if the human race never acknowledges the concept of ownership and therefore each and every man can use any resources that are visible, accessible, and usable to him. What will happen? Logically, everyone will try to exhaust such resources as soon as possible for fear of being preceded by others. There will be no incentive to conserve the resources in this case, simply because each person doesn't know whether other people will do the same. Why bother conserving if there is no mechanism to prevent other people to take the parts that are being conserved by you? As simple as that.

A simple example to this Common Tragedy is the crisis in tuna's supply. The fact that there is no clear licensing for fishing the tunas in the open seas has caused the tunas to be over-fished by the fishermen. As there is no one to supervise such fishing activities, those fishermen simply exhausted the tunas to near extinction level. Can we stop this crisis by simply stop eating tunas? Am not sure if that will be an effective solution. So what's the proper solution for this?

B. Solution for The Common Tragedy: Private Ownership

Yes, the best solution for the Common Tragedy is actually private ownership. Forget the utopian world of Karl Marx! If that utopian world could ever exist in this world, our overall life would be worse than ever.

In general, private ownership provides the best incentive to people to protect valuable resources. After all, each person will do his best to protect his own interest and will not let other people take his rights easily. Let me give you a simple example. Suppose you purchase a land in a city. Soon after you secure all necessary legal documents, you will most probably put fences and maybe even guards to protect the land from illegal trespassers. You will not let unknown people to try using the land for their own benefit. In short, you think for the best interest of yourself, and by doing so you also protect the economic value of such land.

In this case, what would be the role of the state? The state may act as a guardian, a night watcher who will ensure that each man will play in accordance with the rule of the game.

C. Understanding The Anticommon Tragedy

However, while private ownership may be the best solution for preserving resources, it doesn't mean that this solution is perfect. The problem comes when there is too much ownership over a single resource. As I said before, each owner will act to his best interest and will try to maximize his benefit from his part of ownership in such resource. What would happen then? Each owner will most likely block the other owners from using the resource to ensure that they can get the maximum benefit. Sure, they can talk among themselves and reach a mutual understanding on the management of the resource, but what if the number of the owners is very big, so big that the transaction costs of doing good faith negotiations would be too expensive? Here comes the Anticommon Tragedy.

One of the most interesting examples of Anticommon Tragedy is the problem faced by the pharmaceutical industry. I am very sad to know that the cures of some major sicknesses, such as AIDS and cancer, have not been invented yet not because our inventors are too stupid to create them, but because of a very serious dispute on intellectual property rights. There are so many patents for each individual element that is needed to make a cure and each patent holder blocks the cure inventor to use such patent without paying a very high price. As a result, the company feels that pursuing such cure becomes not viable and stop its effort to make one. In this case, the society as a whole becomes the main victim.

Or let us see another simple example regarding a plot of land. Suppose that you enter into an agreement to purchase a land from an old landlord. However, just when you're about to close the transaction, he died suddenly. Apparently the landlord was a millionaire and had lots and lots of heirs, and you know what, that plot of land quickly falls into a dispute between heirs. In this case, you'll be trapped spending a lot of time to negotiate with each heir, finding the right price to satisfy each of them. You might end up getting nothing from this condition as you will realize it is almost impossible to satisfy all of them. In Ronald Coase's theory, the transaction costs are just too huge to follow up the transaction.

Gridlock can also occur in regulatory agencies, that is when there are too many regulators to deal with. One major example would be our beloved country Indonesia. When an investor try to invest in Indonesia, it must deal with many authorities, each having their own jurisdiction and don't even think to see any slight evidence of good coordination between them . This situation create a high cost economy to investors. Not only that they are being confused with the number of authorities, each authority may block the license necessary to conduct the investment. Imagine if you have secured all necessary licenses, all but one, and then you realize that your whole investment fails due to that one particular problem. This type of gridlock is truly a dangerous one.

Looking at the examples above, I am sure that you will consider the Anticommon Tragedy as a very interesting issue. Now, what can we do to solve this issue? Stay tune in the second part of this post :).


Anonymous,  Friday, August 06, 2010 6:37:00 AM  


Resensi yg menarik meski belum selesai :)(ditunggu bagian 2-nya) Ada bbrp hal yg ingin sy diskusikan.

Pertama : Dlm resensi anda disebutkan bahwa solusi yg mungkin tepat atas common tragedy adalah privatisasi. Apa yg anda uraikan, sependek pengetahuan saya, adl konsep common tragedy yg diperkenalkan oleh Hardin (Berkes dan Farvar 1989). Konsep Hardin tersebut merupakan turunan dari pendekatan hak milik atas sumber daya, yaitu common property. Pdhl dalam pendekatan common property tidaklah bermakna tunggal. Makna lainnya adl kepemilikan sumber daya secara kolektif yg menjamin akses sekelompok orang untuk mengaksesnya. Ini berbeda dgn konsep Marx yg menghilangkan konsep kepemilikan. Pada makna yg kedua ini setiap anggota kelompok akn menjaga keberlanjutan sumberdaya tersebut krn berkaitan dengan eksistensi mereka. Jika anda memberi contoh kasus tuna untuk common tragedy dlm definisi pertama. Mk sy memberi contoh kearifan lokal suku baduy dlm menjaga sumber daya airnya untuk makna yg kedua.
Maksud sy, ada makna lain dlm pendekatan common property/tragedy ttg sumber daya sehingga jika pendekatan trsebut didefinisikan dgn makna yg kedua maka privatisasi bukanlah solusi yg tepat krn sesuai tulisan anda sendiri, privatisasi menimbulkan mslh baru.

Kedua: menurut sy,kita sudah trlanjur percaya pd kompetisi yg digaungkan liberalisme. Pdhl di sisi lain ada konsep kerja sama. Kompetisi memang penting tp jangan menghapuskan konsep kerjasama. Hal ini berguna pd saat membahas tentang sumberdaya. Dengan bekerjasamalah mk konservasi ats sumber daya menjadi mungkin dibandingakn berkompetisi.


Pramudya A. Oktavinanda Monday, August 23, 2010 1:40:00 AM  

Terima kasih banyak atas komentarnya dan mohon maaf karena saya lama membalasnya.

Untuk poin pertama: konsep yang menarik dan saya setuju bahwa konsep ini juga bisa dipakai sebagai salah satu solusi untuk Anticommon Tragedy. Hanya saja perlu diperhatikan bahwa pendekatan Common Property hanya akan bekerja dalam masyarakat yang memiliki ikatan kuat, sesuatu yang sudah jarang kita temui di kota-kota besar. Dalam level terbatas hal tersebut bisa berjalan, dalam skala luas, salah satu permasalahan yang sering terjadi adalah Free Rider sebagaimana sering terjadi dengan barang publik. Mungkin saya akan bahas isu ini secara lebih mendalam dalam artikel lain.

Untuk poin kedua anda, kerja sama adalah ide bagus dan harus dipakai secara beriringan dengan kompetisi. Tapi menurut saya, lagi-lagi isu kerja sama terbentur pada masalah kekuatan ikatan dalam masyarakat. Tanpa insentif yang jelas, kerja sama belum tentu selalu berjalan baik, misalnya ada orang yang mau cari untung sendiri, free rider, dsb.

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