Common Pool Resource - CPR

A resource that benefits a group of people, but which provides diminished benefits to everyone if each individual pursues his or her own self interest. The value of a common-pool resource can be reduced through overuse because the supply of the resource is not unlimited, and using more than can be replenished can result in scarcity. Overuse of a common pool resource can lead to the tragedy of the commons problem.

Common-pool resources, such as forests, are often managed by a combination of governments and markets. This can be done by only allowing a certain amount of the resource to be over a period of time, allowing for a core section of the resource to remain intact.

For example, a fishery can sustainably yield 100,000 pounds of fish annually, and the market price of a pound of fish is $4. Ten companies agree to harvest 10,000 each. In the absence of regulation, each company would harvest more than its allotted quota in order to sell more fish at $4 a pound. If each company over harvests by 1,000 pounds the fishery will over harvested by 10,000 pounds, and will not be able to produce the same level next year.


Investment dictionary. . 2012.

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