Why are there too many cows grazing on the grassland (academic paper)

In order to explain the relationship between property rights and resource allocation efficiency, it is necessary to distinguish the different characteristics of private products and public products. Private products have the possibility of exclusive consumption and differential consumption, that is to say, when someone buys a particular item for consumption, the possibility of others buying and consuming it has been ruled out. On the contrary, if a product is not exclusive in consumption and it is difficult to charge, it belongs to public goods. Public goods can provide external positive effects to members of society within a certain range, and the most typical example is street lamps. For a certain number of street lamps, everyone in society is a potential consumer, and anyone's consumption of street lamps does not exclude others' equal consumption. So everyone wants others to provide public goods and enjoy them for free. The problem of free ride makes no one willing to provide public goods, which leads to market failure. "Overgrazing cattle on grassland" is a typical case of market failure caused by external positive effects. Suppose a village has a grassland owned by all villagers, and it is free and unrestricted for villagers to herd cattle on this grassland, then the grassland owned by villagers has the following property rights characteristics: first, the ownership is inseparable, that is, the grassland belongs to all villagers, but each villager cannot claim to own this grassland; Second, the right to use is non-exclusive, that is, no one may restrict others from entering the grassland for grazing; Third, there is an external effect, that is, grass on the grassland is a scarce resource. If a villager puts more cows, it means that it will harm the interests of other villagers, because other villagers have fewer cows to eat grass; Fourth, ownership is non-transferable, that is, no villager can transfer his rights on the grass unless all the villagers agree unanimously. When the villagers who pursue the maximization of their own interests have the opportunity to graze cows freely, it is profitable to graze cows as long as the output of cows is greater than the cost. Only when the profit drops to zero will the villagers stop increasing grazing on the grass. However, a single villager ignores the social cost of his grazing behavior when making decisions, that is, he will reduce the milk production of other cows by releasing more cows. When the selfish behavior of individual villagers to increase grazing is not stopped, other villagers will choose to increase grazing times, which will inevitably lead to excessive grazing of cows on the grassland and eventually completely destroy the grassland. This is why there are fewer and fewer yellow croaker in the Yellow Sea and fewer whitebait in Taihu Lake. Therefore, under the condition of scarce resources, once the ownership of property rights is unclear, there will be a problem of "hitchhiking", that is, the actor is unwilling to take the initiative to pay for public products, and always hopes that others will provide public products and then enjoy them for free. In this way, it is impossible to produce the optimal number of public goods. So, how to solve the excessive use of scarce resources caused by externalities? In the past, welfare economics followed Pigou's tradition and advocated introducing government intervention to solve the problem of market failure. For example, producers can be directly guided to provide the optimal output combination through government pricing, and the private cost of production or consumption can be consistent with the social cost through taxes or subsidies. However, the transaction cost school represented by Coase questioned this method and thought that market failure could be solved more efficiently through the definition of property rights. They believe that under the condition of fully defining and implementing property rights, the voluntary agreement reached between private individuals can make the private cost of economic activities consistent with the social cost, realize the internalization of external effects, and thus realize the optimal allocation of resources. Of course, the definition of property rights can be diversified. In the case of overgrazing, one possibility is that all villagers reach an agreement to replace public property rights with collective property rights. Once the collective property right is established, the villagers' committee can use the democratic voting procedure to determine the total scale of grazing cows on the grassland and the number of cows that each household can graze, and formulate corresponding punishment measures, so as to realize the optimal allocation of resources; Another possibility is to clearly define grasslands to natural persons. As long as property rights are exclusive, some property rights will be transferred to the highest bidder among many competitors, thus improving the efficiency of resource allocation.