The Tragedy of the Human Commons

Abstract:     
Tragedy of the human commons is a special case of tragedy of the commons in which the common resource is composed of human beings. Because humans, unlike trees or fish, behave strategically and because the welfare of humans, unlike that of trees or fish, matters for its own sake, tragedy of the human commons presents different problems and can be solved in different ways. In this Article, we explore - and solve - one important example of tragedy of the human commons: health insurers' failure to make long-term investments in improving the health of their common resource, the pool of insureds who switch among health insurers.

We make three major contributions in this Article. First, we describe the unique characteristics of the tragedy of the human commons. We show that this distinction both complicates analysis of commons problems and makes available a variety of solutions unavailable in regular commons. Second, we develop a rich theoretical framework of possible solutions to the tragedy of the human commons. Third, applying the theoretical framework to the health care system failure to cover prospectively efficient treatments, we outline our proposal for a mandatory-membership clearinghouse among insurers. Through the clearinghouse we propose, insurers would decide on and make transfer payments to each other that would induce each of them to cover efficient treatments. We explain how such a clearing house would work and why such a clearing-house is politically feasible.

Number of Pages in PDF File: 34

Keywords: tragedy of the commons, common resources, health, clearing house

JEL Classification: I11,K32

Accepted Paper Series