2. Objectives Describe common pool resources Appreciate the value of good corporate governance Understand the importance of the accreditation process Appreciate the significance of the best practice and bench marking of tourism businesses Be aware of the precautionary principles
3. Content 1. Introduction 2. Common Pool Resources 3. Social Traps 4. Governance 5. Accreditation 6. Best Practice and Bench Marking 7. The Precautionary Principle 8. Conclusion
11. Social Trap Theory One person trap-short-term benefit for the individual and long-term costs Missing Hero trap-someone is required to act for the betterment of the group Collective traps-example…The tragedy of the commons
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15. The Tragedy of the Commons Or: the challenge of common-pool resources Or: why the sum total of individual “rational” choices can lead to perverse (and socially sub-optimal) outcomes Credits: cow images from http://www.woodyjackson.com/
16. Imagine a field of grass shared by 6 farmers, each with one cow…
17. A few facts: Each cow currently produces 20 liters of milk per day The carrying capacity of the commons is 8 cows . For each cow above 8, the milk production declines by 2 liters (due to overgrazing, there is less grass for each cow: less grass, less milk!). 20 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 120 liters
18. Do the farmers sit back and stay at 6 cows? Not if they are individual profit maximizers (here simplified as milk production maximizers) 20 liters 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 120 liters (6 cows)
19. Do the farmers sit back and stay at 6 cows? Not if they are individual profit maximizers (here simplified as milk production maximizers) 20 liters 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 140 liters (7 cows) 40 liters “ I’ll get another cow”
20. We are now at the carrying capacity -- do they stop? No. 20 liters 20 liters 20 liters 20 liters Total daily milk production for the commons: 160 liters (8 cows) 40 liters 40 liters “ Then I’ll get another cow too”
21. They are now at the maximum total milk production. But do they stop? No… 18 liters 18 liters 18 liters Total daily milk production for the commons: 162 liters (9 cows) 36 liters 36 liters “ I’ll get another cow” 36 liters
22. 32 liters 16 liters 16 liters Total daily milk production for the commons: 160 liters (10 cows) 32 liters 32 liters 32 liters “ My cow is now less productive, but 2 will improve my situation”
23. 28 liters 14 liters Total daily milk production for the commons: 154 liters (11 cows) 28 liters 28 liters 28 liters “ I’ll get another cow” 28 liters
24. 24 liters Total daily milk production for the commons: 144 liters (12 cows) 24 liters 24 liters 24 liters 24 liters “ Well, everyone else is getting one, so me too!” 24 liters
25. 20 liters Total daily milk production for the commons: 130 liters (10 cows) 30 liters 20 liters “ Well, I can still increase milk production if I get a third cow” 20 liters 20 liters 20 liters
26. This could go on for a while in a vicious downward cycle… And I am getting very hungry!
28. Viewed graphically Maximum total production for commons: 162 liters/day Yet individual farmers will continue to add cows until there are 15 cows on the commons Current level Gain (or Loss) to Individual Farmer for adding one cow Total Milk Production per Day for all the cows combined
29. Viewed graphically Maximum total production for commons: 162 liters/day Gain (or Loss) to Individual Farmer for adding one cow Total Milk Production per Day for all the cows combined GAP Socially Optimal Result of individual behavior loss in output
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33. And, the model: In this model, everyone contributes three chips except for the user, who can choose how many to contribute using a slider. What the user finds is that the best strategy is to take three chips. It is a dog eat dog poker chip world.
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35. More Conscious Farmers Get Less: Farmer 3: 4.5 Cows Farmer 2: 8 Cows Farmer 4: 2 Cows Farmer 1: 12 Cows It’s just not fair!!!
45. GOVERNANCE,SOCIAL THEORY and COWS A CHRISTIAN: You have two cows. You keep one and give one to your neighbor. A SOCIALIST: You have two cows. The government takes one and gives it to your neighbor. A REPUBLICAN: You have two cows. Your neighbor has none. So what? A DEMOCRAT: You have two cows. Your neighbor has none. You feel guilty for being successful. You vote people into office who tax your cows, forcing you to sell one to raise money to pay the tax. The people you voted for then take the tax money and buy a cow and give it to your neighbor. You feel righteous. A COMMUNIST: You have two cows. The government seizes both and provides you with milk. A FASCIST: You have two cows. The government seizes both and sells you the milk. You join the underground and start a campaign of sabotage. DEMOCRACY, AMERICAN STYLE: You have two cows. The government taxes you to the point you have to sell both to support a man in a foreign country who has only one cow, which was a gift from your government. CAPITALISM, AMERICAN STYLE: You have two cows. You sell one, buy a bull and build a herd of cows. BUREAUCRACY, AMERICAN STYLE: You have two cows. The government takes them both, shoots one, milks the other, pays you for the milk, then pour the milk down the drain.
46. AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. You are surprised when the cow drops dead. A FRENCH CORPORATION: You have two cows. You go on strike because you want three cows. A JAPANESE CORPORATION: You have two cows. You redesign them so they are an eleventh the size of an ordinary cow and produce twenty times the milk. A GERMAN CORPORATION: You have two cows. You reengineer them so they live for 100 years, eat once a month and milk themselves. AN ITALIAN CORPORATION: You have two cows but you don't know where they are. You break for lunch. A RUSSIAN CORPORATION: You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 12 cows. You stop counting cows and open another bottle of vodka. A SOUTH AFRICAN CORPORATION: You have two cows with Mad Cow Disease, but the President of the country denies the illness exists! A SWISS CORPORATION: You have 5000 cows, none of which belongs to you. You charge for storing them for others. A BRAZILIAN CORPORATION: You have two cows. You enter into a partnership with an American corporation. Soon you have 1000 cows and the American corporation declares bankruptcy.
47. And now, the "ENRON STYLE": You have two cows. You borrow 80% of the forward value of the two cows from your bank, then buy another cow with 5%down and the rest financed by the seller on a note callable if your market cap goes below $20B at a rate 2 times prime. You now sell three cows to your publicly listed company, using Letters of Credit opened by your brother-in-law at a 2nd bank, then execute a debt/equity swap with an associated general offer so that you get four cows back, with a tax exemption for five cows. The milk rights of six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder, who sells the rights to seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more and this transaction process is upheld by your independent auditor. The Balance Sheet provided with the press release that announces that Enron, as a major owner of cows, will begin trading cows via the Internet site.
60. The precautionary principle was conceived in Germany ( Vorsorgeprinzip, meaning precautionary principle) during the 1970s for the purpose of exercising foresight in matters of environmental policy and resource protection. It was introduced internationally in 1984 at the First International Conference on the Protection of the North Sea. Since then, the principle has been extended into national and international environmental policy by more than 40 countries, and is now affirmed in many international treaties and laws