URBS 4/511 Urban Policy and Strategic Analysis


TheLandowners' Game

 

The Tragedy of the Commons

Garret Hardin, in "The Tragedy of the Commons," (Science, 1968) tells a tale which underscores the importance of incomplete knowledge. In Medieval England, the yeoman farmers grazed their animals on a common field in the center of the village. Every farmer in the village had the right to graze all of his or her animals on this land, called the "Commons." In the sixteenth century, a technological advance in weaving began to destroy the Commons. A new type of loom permitted weavers, working in their homes, to produce high quality woolen fabric at a much greater rate than before. Yeoman farmers could weave wool from their own sheep at home and sell it for a good price on the export market, thus freeing themselves from subsistence farming. This encouraged farmers to graze increasingly larger flocks of sheep on the Commons. When the Commons was first established, most of the grazing was done by horses and cattle--cows and oxen--which nip the tips of the grass but leave the roots undisturbed. Sheep, on the other hand, eat the grass down to the roots; sheep pasture must be left fallow if it is to recover. The farmers, seeking the economi security of an outside income, overgrazed the Commons until it died. They lost their farming income as well as their weaving, since the draft animals lost their pasture along with the sheep.

There were probably few farmers who recognized the risks they (all) were running. But even supposing one of them recognized the danger before it was too late,what could s/he do? If one farmer refused to put more sheep on the Commons, it just left room for the others to put more on, and the self-sacrificing farmer would be left to face the coming crisis without the additional income that the last few sheep would have brought. Logic would only seem to push the farmers more quickly their common doom.

The Prisoner’s Dilemma

The logic of such public choices has been called the Prisoner's dilemma, after another story (Thomas Schelling, Micromotives and Macrobehavior, 1978). Suppose you are picked up and interrogated by the police. The detective informs you that they know you and your buddy have been burglarizing houses in the neighborhood, and they have enough evidence to send you both away for 3 years as it is. But they are particularly interested in closing the file on the job they suspect you two of having done last night. If you turn State's evidence and testify against your partner, you'll get off with 1 year (your partner will get 10 years). If you remain silent and your partner talks, the sentence will be reversed. If you both talk, then you'll probably go up for 7 years each. The table below illustrates their situation, with Prisoner A's choices across the top and Prisoner B's choices down the side. The first number of each pair represents A's outcome, the second is B's.

 

Talk

Silent

Talk

7/7

10/1

Silent

1/10

3/3

What do you do? Suppose you can trust your buddy not to squeal on you. Then if you stay silent you will spend the next 3 years in prison, but if you talk you can walk out in 1 year. Suppose your buddy does talk. Then if you stay silent you will spend the next 10 years in prison, while if you talk you only get 7 years. Clearly, either way you come out ahead by talking--the rational choice is to betray your partner. Since your partner is also rational, you can expect that both of you will talk. The result is that you will both go to prison for 7 years instead of the 3 years you would have gotten had you not been so"rational." This information, however, does not help; no matter what your partner chooses to do, your self-interest is best served by talking.

Themodel which underlies the Prisoner's Dilemma explains a great number of apparently irrational choices. It explains why the farmers overgrazed the Commons. It explains why landlords allow their buildings to turn into slums (Davis & Whinston, "The economics of urban renewal," Law and Contemporary Problems, 1961). It can explain why industries pollute watersheds and airsheds and why commuters persist in creating gridlock. It represents probably the single greatest challenge to making decisions in local government.

The Landowners' Game

You own rental property in the city. The neighborhood is an older one, and it is starting to show its age. The sidewalks are cracked, the streets are crumbling, and the garbage doesn't always get collected. The neighborhood is changing; it used to be a working-class area, but now more and more of the residents don't seem to have regular work. Many have given up looking. Your buildings are past their prime, too. They need new roofs, the windows are no longer airtight (many even have broken panes), the plumbing is starting to rot and the electrical service is antique. Needless to say, all your buildings need paint.

It will cost money to make the repairs, and you're not sure you'll get it back in rents. If you spruce up your place and no one else does, you'll hardly be able to raise your rents at all because the buildings will still be in a tough neighborhood. And the other landowners-who put nothing into repairs-will be able to raise their rents just as much as you do! On the other hand, if a bandwagon gets started and most of the buildings are rehabilitated, then the neighborhood could get a reputation as a "hot" place to live and you could get more back in rent than you paid for repairs. If enough of the landowners are involved, you might even convince the city to initiate a special "code enforcement" program to push the holdouts into line.

What do you do?

The Play: Each person in your group (it is easiest in groups of 10) represents a landowner in the district. You must decide whether to improve your property this month or not. You must make your decision in private without colluding with your fellow landowners. Working together violates the antitrust act and will result in Federal prosecution.

As each of you announces your vote (written in advance so you are not tempted to cheat), it is recorded on a scoring sheet. Once the voting is done, each players "earnings" (or losses) are recorded, using the schedule below. Play continues for 10 rounds or until everyone in the group votes the same way 3 times in a row.

Goal: Maximize Rents

Cost of improvements: $20/unit

Return from improvements:

% upgrade

$ rent increase

10%

$5

20-40%

$10

50-60%

$15

70%

$20

80-90%*

$25

100%

$30

*holdouts fined $10

When the game is completed, tally the scores and calculate the net gain for the neighborhood and the top rent-earner in your neighborhood. If your neighborhood stopped playing before ten rounds elapsed, count the unplayed rounds as earning the same the previous three rounds.

The Analysis: Compare your group's performance to that of other groups in the class:

Summary Question

What do these activities tell you about the dynamics of neighborhood growth, decline and removal? Why are there slumlords? Why isn't everyone a slumlord?


MSU

2009 A.J.Filipovitch
Revised 26 May 2009