The tale of the tragedy of thecommons is re-told as a problem of vertical governance rather than a problem of horizontal contracting. States make the fundamental determination concerning the amount of management conferred upon resources within their territories, and the groups using these resources are substantially constrained by this prior determination. In particular, it is demonstrated that it is unlikely that institutions might arise endogenously at the user level, when the state has abrogated its responsibility to generate them at the sovereign level. States make the decision to pursue something other than first-best management because institutions require investment and as such must compete against other such investments within the economy. This results in a distinct form of the tragedy of the commons, in which other agents attempt to enter and to exploit the vacated governance positions abrogated by the state, resulting in problems of corruption, waste, and worse.