A commons represents a resource that is accessible to members of a society. Examples of natural commons would be fisheries, watersheds, national parks, forests, and clean air. Cultural examples would be the rule of law, democracy, public education, and heritage sites.
Every commons is at risk of degradation. For example, fisheries can be overfished, a city watershed can be polluted, a public school can be vandalized, or a democracy can be corrupted. In sum, the actions of a few have the potential to degrade an asset shared by many.
Such degradation is not new to mankind; it has been a topic of philosophical discussions since Greek antiquity (Thucydides 460-395 BC and Aristotle 384-322 BC).
Degraded commons may be described in moral terms, cultural terms, biological terms, mathematical terms, or any number of ways. At Schock Market, Inc. we believe degraded commons are best defined in economic terms. The economic model we use is known as tragedy of the commons.
“The Tragedy of the Commons” is a 1968 report, written by American ecologist Garrett Hardin. (The example Hardin utilized was one first introduced by a mathematical amateur, William Forster Lloyd, in 1833.)
Hardin discusses a scenario where English herdsmen overgraze a public meadow or commons with their cattle. The herdsmen’s benefit from grazing is stated as +1 while the cost of their activity is described as <1.
The cost is less than 1 because the herdsmen share their grazing cost with society. This cost/benefit discrepancy incentivizes herdsmen to overgraze the commons, resulting in the destruction of the commons.
Here are some modern examples:
1) When a fisherman catches an endangered loggerhead sea turtle, he reaps all the gain of the catch while sharing with the world the cost of that turtle loss.
2) When you drive a gasoline automobile, you reap all of the benefit of that activity while sharing with society the cost of increased air pollution.
3) When a politician chooses to deficit spend, he or she reaps all of the political clout associated with that spending while sharing with future politicians the cost of repayment.
In each case above, gain is concentrated in the hands of one while the cost of that activity is dispersed across many. This is a “tragedy” because each activity, while rational in economic terms for the individual, is destructive and thus irrational for society.
Society may arrest this destructive force through two forms of intervention:
1) Government taxation: For example, government may impose taxes on auto fuel in an effort to reduce fuel consumption and corresponding air pollution.
2) Government regulation: For example, government may set limits and police the fish catch along its coastline in an effort to maintain healthy fish stocks.
Both forms of intervention have enjoyed success in reducing destructive practices, particularly in those nations where rule-of-law is a cultural norm.
The problem with tax and regulatory efforts, however, is that as authorities clamp down the corresponding economic reward for evading this government constraint grows. The consequence is a diminishing marginal return on efforts to limit destructive practices. In short, more intense policing means more profitable poaching (or similar degradation via political corruption, moral hazard, rent seeking, organized crime, etc.)
The power of this “push back” is perhaps most clearly revealed in our natural commons. Around the world, our stock of fish, wildlife, and biodiversity continues to diminish at an alarming rate despite decades of well-intentioned tax and regulatory efforts.
A recent study by the World Wildlife Fund, the Zoological Society of London, and others determined that world wildlife populations plunged 52% between 1970 and 2010.
Schock Market has pioneered a system where citizens may invest in a proposed alternative to the status quo of a commons. Citizen do so by bidding on claims. Winning bids are formed through a unique combination of time-in-market and amount bid, called engagement value.
Markets are designed to be primed by exploratory participants making claims, accruing time in market, and offering suggested improvements for the market. As markets are refined and vetted, these participants are displaced by large institutional participants interested in winning the now polished market outright.
In many instances, degraded commons are profitably mined or poached by a select few (e.g. cattle herdsmen). These few enjoy intimate knowledge of their activity—the financial stakes involved and related stakeholders.
These stakeholders can use this information and funds from their mining or poaching to mount a well-financed and well-organized effort to defend the status quo. They resist change—through political channels, through financial channels, or even through the use of coercion.
We call this possession dominance, a term coined at Schock Market.
Claim markets use the efficiency of markets to reveal the outcome of proposed alternatives. In short, Schock Market engineers a competitor to the status quo, a competitor armed with a discernible future as it relates to cost, participants, and innovation.
This competitor can be employed in overcoming possession dominance. Clarity provided by claim markets provides citizens with a choice between maintaining the status quo or switching to the now blueprinted alternative.
For greater detail on the economic foundations of claim markets, please write to: firstname.lastname@example.org.
Each claim market is a proposal. It is a form of free speech.
Many obstacles stand between this free speech and actual implementation of the market proposal. Some claim markets may be contrary to existing local, state, or federal laws, making implementation impossible without changes to applicable law. Schock Market makes no representation as to whether any particular claim market will result in a public/private partnership, tax savings, voter initiative or any changes or outcomes proposed by market creator or participants. Schock Market cannot guarantee that our market proposals will be implemented or that any payouts will be paid.
All participation is subject to the Market Rules, available here:www.schockmarket.com/marketrules.