How it came To Be That Too Many Cooks Spoil the Broth: A Study into the Problems of Ill-Defined Property Rights
“Resources are limited, whereas Human wants are unlimited. Economics is the study of how people utilize these goods as to get the highest level of satisfaction.”
These are few of the very first words of wisdom every novel economist has to learn. Further on in his pursue of knowledge he is explained; In organizations conflict often revolves around common resources as they are critical for influence, power, performance and even organizational survival.
A commons is a shared resource for which access to users is not restricted, and use of the resource subtracts from the other users’ benefit. As first introduced by Hardin in 1968 in his work “The tragedies of the commons”; the very existence of common resources surfaces a very different kind of a problem. When many people have the privilege to use a commons resource and no one user has the right to exclude another, not only is conflict likely, but tragedies of resource inefficiency and exhaustion emerge. Considering that a primary goal of any organization is to use resources effectively and efficiently to achieve its goals, conflict involving commons resources can pose a significant threat to an organization’s performance.
To resolve (and even avoid) the tragedy of the commons, a pleura of solutions have been proposed by leading economists. One popular solution suggested by the property rights, territoriality, and social dilemmas literatures is privatization of the common resources. Broadly speaking, privatization.
Theory behind privatization is set to encourage efficient and effective management of the commons because, economically, the user will incur not only just the benefits of the cost of its management, but also psychologically, the user has an increased social responsibility towards their portion of the commons. Such privatization is made possible through policies like; territorial marking, procedures, job descriptions, signs, locks and passwords.
In his work “Institutions: Institutional change and economic performance” Nobel Laureate Douglas North theoreticizes that even when a “Levethian” (or any other form of central authority) arbitrates disputes of ownership, Psychological ownership may remain and motivate individuals to follow informal “rules of the game” about governing the commons that diverge from the otherwise “formal rules”.
While maintaining that psychological ownership is mostly an effective solution to the management of common resources, many of the property rights, territoriality, and social dilemma literatures assume that there is a shared understanding amongst the users about governing of the common resource. This states, that users are assumed to agree on who should have the authority to restrict access to and use of the common resource.
However as we often see, disagreement arises over who should control what within organizations. Even Nobel Laureate Elinor Ostrom in her work “Governing the commons” suggests to us that characteristics of the resource and its users can make privatization, whether formal or informal, challenging to form and sustain. She explores; What happens when users, left to negotiate the privatization of a common resource, do not share the same perceptions about how it should be governed? If such a situation arises then attempting to privatize a commons resource can lead to the “tragedy of the anticommons”
An anticommons is a non-substitutable resource over which multiple actors claim rights to restrict access to the resource and no one has an effective privilege of use. We maintain that individual actors – be they persons, groups, or departments – with overlapping (psychological) claims to a commons resource may unintentionally facilitate the emergence of an anticommons resource. Consequently, overlapping psychological claims obstruct efforts to deploy anticommons resources in ways valuable to the organization, thereby impairing organizational effectiveness. Specifically, it was proposed within the paper by Heller that * resources that are difficult to divide, provide an unequal distribution of benefits, and have limited carrying capacity along with groups that are large and differentiated create environments where users experience an egocentric view of fairness and reactive egoism, * an egocentric view of fairness and reactive egoism results in over-marking and over-defending, territorial behavior, * over-marking and over-defending behaviors result in a commons resource becoming an anticommons resource, and * The carrying capacity of the commons resource moderates the effect territorial behavior has on the likelihood of the emergence of an anticommons resource.

In this research paper we propose to analyze the anticommons problem in comparison with that of the familiar commons setting within the scenario of a very common indian setting. Of greater importance, perhaps what we are suggesting is that only minor variations from our construction are required to infer sources of major value wastages in modern regulatory bureaucracy.
A Stylized Example
The brief analysis of commons and anticommons above is facilitated by a simple stylized model that illustrates explicitly the symmetry between the two “sides” of the account. For this example consider a large Indian village, Like they are usually to ameliorate the condition of the people living beneath the poverty line the government (A Levethian of Hobbe’s fashion) institutes various welfare schemes.
Let one scheme (Scheme A) provide a maximum wage of Rs. 200 and the other one (Scheme B) a flat minimum wage of Rs. 100. But Scheme A’s maximum capacity is well below the open access demand to seek employment. Whereas ample employment may be found within Scheme B.
Any viable resource required to bring about profitability and emerge as a potential tool must be limited in terms of usability by allied and general agencies. Common accessibility of that resource at all levels will in turn make it deficient and meager. The resource will only be an asset to the larger picture if it is controlled at source and limited to a certain number, universal usage and exploitation will, however lead to its waste and decadence. To name a few examples: fishing grounds, oil pools, hunting territories etc,
Assuming these Schemes to resources – to help gain employment. Within our example if access to gaining employment under Scheme A is free and unrestricted (i.e there is a lack of transaction costs within the meaning of Coases’ theorem) Congestion will reduce the potential maximum income to be earned to equality with the wage given out within Scheme B. This solution of-course describes to us the classic commons tragedy. The value of the more favored scheme (Scheme A) can be realized only by restricting access, through quota lottery or other means, they need to be institutionally accomplished by assignments of ownership rights.
Over the years economists have been at it to find a substantial answer to this prevalent phenomenon- the sustainability and worthy output of the resource fails due to lack of proper usage and organization. One way of effective maximization of the resource is delegating rightful ownership and identity of the resource. The right owner will minimize wasteful loss of income and bring about rise in the potentiality of the resource.
One needs to analyze the fact that why does open and common usage exploits and makes the resource non-potential? It could be that the resource being not a commodity that can be divided, though simultaneous usage does happen, it however defeats the value productivity of all the common users. Moreover, with sporadic usage decisions, the inputs will not be fully channelized as per the logistics or thought process of the decision maker. Open exploitation of the resource will devalue it.
The only way is to concentrate authority at the center of the resource, which is in direct connects with its full potential and that will generate resource productivity and value outputs.
Consider now, A standard reform: Earlier people could just apply for the schemes and gain employment. This way both the Schemes are used and the workers can potentially maximize their returns. However if change it be that to work under any of the schemes they need to first gain permission from both the Scheme Headquaters. Now instead of one Scheme being granted usage or exclusion rights, Two firms are given exclusion rights to be exercised simultaneously.
Note that exclusion rights must be total in order to have positive value. The assignment of a right to exclude all persons other than a single other designated user will be valueless because the latter could extend usage without restriction. Suppose, then, that two schemes are assigned total exclusion rights. That is, each "excluder" may prevent any potential user from gaining access. This way heads of both the scheme will obstruct people going and working for the other scheme. This way neither of the schemes will be able to realize their full welfare potential.
Here we clearly are in an anticommons setting, and any solution will involve less than efficient utilization of the facility. The wastage of value will be a function of the number of decision-making units that are assigned rights to exclude users-rights that may be simultaneously exercised. As this number increases, the wastage of underutilization increases, and, in the limit, the resource will be completely unused.
Unlike the conventional commons problem where more than one person is assigned the usage rights to a common property, here the common property is privatized and the person is given both the usage and the exclusion rights to the property. So, the person can now exclude other agents from using the property, thus, correcting the problem of overutilization of the common resource.
As measured by the economists, the anticommons tragedy leads to underusage and the opportunity loss will depend on the number of persons assigned simultaneous rights as in the case of the commons problem. In both the cases, inefficiencies arise due to the externalities imposed by the individuals exercising their assigned rights. In case of anticommons or the exclusion side of the model, a person may reduce the resources available to others who also exercise their potential exclusion rights, by reducing the inputs to the common resource.
The two essential elements of property rights therefore are (1) the exclusive right of individuals to use their resources as they see fit as long as they do not violate someone else’s rights and (2) the ability of individuals to transfer or exchange those rights on a voluntary basis. The extent to which those elements are honored and enforced will determine how effectively prices in an economy will allocate goods and services.
Applications
Michael Heller introduced the concept of the anticommons to explain his observation of post-1990 developments in Moscow, where many buildings remain empty while numerous kiosks occupy the streets. The buildings remain idle because any potential user must secure the agreement or permission of several agents, each of whom may exercise a right of exclusion.
Heller and Rebecca Eisenberg have also applied the anticommons metaphor to explain possible lags in applying research developments subsequent to the institutional changes in the 1980s that extended patent protection to basic research findings often emerging from academic university laboratories. To the extent that, through exclusive licensing rights, the holders of a patent on a basic research finding seek to exploit the rental value, the follow-on potential developer is inhibited from securing the value that might otherwise have been available. As a result, development is stifled, especially when patent protection is itself designed to offer the basic motivation for investment in research.
James Buchanan recently encountered another clear application of the anticommons tragedy. On a visit to Sardinia, Italy, in early 1999, we were informed that a potential entrepreneur seeks to invest in a combined seaside/hunting-preserve resort. Action is inhibited, however, by the necessity of getting permits from several regional agencies (for example, the tourist board, a hotel-restaurant agency, and the wildlife protection agency), each one of which holds effective exclusion rights to the project that might, if implemented, be productive of value.
Another example that is widely familiar involves the bureaucratic barriers to residential construction. Housing permits require the approval of several separate overlapping agencies, each of which can prevent construction. Neither the motivation of the bureaucratic authorities nor the constraints on their exclusion rights is captured in the simple unidimensional models introduced in the formal analysis. Those who are empowered to issue permits may not seek to maximize rents and, perhaps of greater importance, may be authorized to refuse permits only with cause. In sum, only some elements of the behavior of permit-granting bureaucrats may be described in models that embody "as if" ownership. Nonetheless, the partial insight offered by such models can scarcely be questioned.
These examples suggest the pervasiveness of the anticommons setting in many areas of modern economic interaction. The environmental movement, emergent since the 1960s in particular, has had the effect of interposing additional authorities with the right to exclude development of facilities. While these authorities have, without question, prevented some value reducing development, they have also prevented value-enhancing development. Economists as well as environmentalists have perhaps concentrated too much attention on the commons side of the ledger to the relative neglect of the anticommons side.
The primary thrust of the analysis in this paper is the demonstration of the formal symmetry between the overusage of a resource because of common (multiple) access and the underusage because of multiple exclusion fights. It has seemed useful, for this purpose, to assume that either users or excluders can capture pecuniary gains from their own actions. The applications suggest, however, that either usage or exclusion fights may be assigned to agents who cannot, or may not desire to, capture directly pecuniary gains (for example, the environmental agents whose permission must be secured for a resource development). Allowance for such noneconomic motivation on the part of excluders also suggests that the potential conflict need not be primarily distributional but may also reflect different objectives for facility development.
In addition, allowance for noneconomic motivation suggests that the "natural" pressures toward efficiency represented by the implementation of agreements, mergers, or contractual arrangements generally among affected parties may be much less effective than the formal analysis seems to imply. The genuine zealot, as either user of or excluder from a potentially valuable resource, may be insensitive to proffered compensations.

Submitted By:-
Yashwardhan Aggarwal
Siddharth Gupta
Sanat Bathla

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