Appropriation Externalities

An appropriation externality results whenever a users consumption of a resource reduces the level available for other users. This type of externality is fundamentally linked to the definition of a CPR. For instance, a common area used by farmers for grazing cattle is subject to appropriation externalities. Every farmer that allows their cattle to graze in a common area reduces the available forage for the other farmer's cattle. This is often referred to as the "tragedy of the commons" (Hardin, 1968).

resources. In his work, Gordon illustrated that fishermen will distribute their effort within a fishery so that the average locational return is equal among available fishing grounds. Since the average return is greater than the marginal locational return, this creates an environment where the marginal cost of extraction is greater than the marginal return. Therefore yielding an inefficient outcome.