Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

In 1833, an English economist William Forrester Lloyd published a pamphlet which included an example

of how common resources can be destroyed by overuse.

In 1968, an ecologist, Gareth Hardin, influenced by this pamphlet, wrote a paper called

The Tragedy of the Commons. Hardin was a respected ecologist, but the tragedy of the Commons

wasn't an ecological study.

In fact, there was nothing in the piece that had not been discussed earlier by fisheries

economists.

Hardin's genius was not in discovering this issue, it was in communicating the concept in a

captivating story and giving it a memorable name.

The term, the tragedy of the commons, is one of those terms that escaped from academia and

took on a life of its own, an idea that most of us are familiar with today.

In his paper, Hardin asked his readers to imagine a common pasture land that's owned by everyone

and by no one all at once. It's available to anyone to graze livestock on. Now consider the

incentives faced by people bringing animals to feed. Each additional cow brought to the pasture represents pure profit for its owner.

But the commons can't sustain an infinite number of cows. At some stage it will be overgrazed

and the entire ecosystem will fail. That cost is not borne by any individual, but by society as a whole.

Hardin went on to demonstrate that this type of incentive leads inescapably to ecological disaster

and the collapse of the commons.

He didn't use the word tragedy to mean an unfortunate outcome.

He instead used it as Aristotle did, meaning a dramatic

outcome that's the inevitable but unplanned result of a character's actions.

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