Monday, September 29, 2008

Bailout Vote Fails -- An Example of the Tragedy of the Commons?

The Tragedy of the Commons describes a situation where individuals each have an incentive to try to maximize their use and benefit from a shared resource, but where that leads to overuse that harms everyone in the group. I think a version of this is what we are seeing with the financial bailout plan, which just failed to pass in the House, leading to a sell-off on Wall Street.

Democrats and Republicans have a strong collective incentive to pass this bailout, because as distasteful as it may be, the alternative is worse. But the deal is unpopular with voters, and this gives individual representatives who are facing re-election an incentive to vote against it.

I'm sure further attempts will be made to get something done, but the timing of this, only a few weeks before Election Day, couldn't be worse.

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