The Tragedy of the Commons refers to the depletion of a shared resource by individuals acting independently and rationally, according to self-interest, despite knowing that an abuse of the common resource is contrary to their long-term interests. The Tragedy is a model of many of society’s resource-based problems, including over-irrigation, habitat destruction, over-fishing, traffic congestion, and air pollution. The Free Rider problem refers to when an individual benefits from another’s work without paying for it. The two practical ways to overcome this problem are through compulsory participation (e.g. carbon tax, cap-and-trade) and through linking the public good to a desirable private good (getting people to pay voluntarily). Both methods are controversial and politicized. <br><br> Social entrepreneurs have attempted to solve the Free Rider problem, including Verdant Power, a developer in the design and application of marine renewable energy. The obstacles it faces are the same as those that stymie most social entrepreneurs. The firm lacks revenue streams and profits, is at the mercy of private equity investors and/or the government, and must counter existing bureaucratic and regulatory impediments. The good news, however, is that institutional support for social entrepreneurs has grown enormously into a support ecosystem. Ultimately, the problem for social entrepreneurs may not be opportunity recognition as much as obstacle recognition and finding solutions within this burgeoning ecosystem.

The case provides the facts and figures for the complete financial evaluation of the construction and operation of an automobile manufacturing plant for the new GM Macaw in Brazil. Although the Macaw is to truly be produced by GM in Brazil, the financial and economic values used in the case are fictionalized. The challenge for GM is to evaluate the pro forma financial analysis as to whether the project is a viable investment for GM from both the subsidiary and the parent's viewpoint.

Spreadsheet supplement for TB0201.