Micro Foundations · intro
What moves on the Tragedy of the Commons diagram
A licence fee raises the private cost of fishing until entry stops near the social optimum, internalizing the externalityexternalityA cost or benefit that lands on someone outside the transaction, pollution's harm, vaccination's protection. each boat imposes on the rest.
Open access: boats keep entering while the average catch beats the cost of going out.
The government introduces a licence fee for every boat on the lake.
The cost line jumps up, so entry now stops much earlier.
Fewer boats, healthier stock, higher catch per boat. The fee forces each skipper to feel the cost they impose on everyone else.
Examiners ask this as: licence fee, fishing permit, quota fee, tax on boats, entry fee.
Other scenarios on Tragedy of the Commons