Question

Suppose a common resource ------wood in a public forest -----------is being overused because residents consider the benefits of gaining firewood or wood for building but do not account for the cost of deforestation when chopping down trees. What could be done to prevent wood in the forest from being​ overused? To prevent overuse of the common​ resource,

Answer 1

Common Resources are nonexcludable but rival in consumption. Non-excludable means that the supplier cannot prevent the consumption of the good by people who do not pay for it. On the other hand, rival in consumption means that consumption of the good by one individual reduces the amount available for the consumption of others. So, in order to ensure the efficient use of a common resource, residents must find a way of getting individual users of wood in a public forest to take into account the costs they impose on other users.

A common resource can be efficiently managed by

1. Tax or regulation on the use of the common resource: Pigouvian taxes or congestion charges
2. Making wood in a public forest excludable and assigning property rights to it
3. Establishing a system of tradable licenses for the right to use the common resource