Registered Environmental Manager (REM) Practice Exam

Which of the following is an example of a transboundary externality?

1. A local water shortage

2. Polluted water in a single state

3. Rivers flowing through multiple countries

4. Water reserved for irrigation only

The correct answer is: Rivers flowing through multiple countries

Transboundary externalities refer to situations where the actions taken by one entity in a particular location can have effects—positive or negative—on entities in other areas, particularly across borders. In the case of rivers flowing through multiple countries, the use or management of that water resource in one country directly affects the countries that share the river. For example, if one country decides to dam a river, it could reduce water flow to neighboring countries, thereby impacting their water supplies, agriculture, and ecosystem health. This interconnectedness of water bodies illustrates the complex relationship between different jurisdictions and the necessity for cooperative management to mitigate any adverse effects. It highlights how local decisions regarding transboundary resources require consideration of broader implications, making it a clear example of a transboundary externality. The other options, while they may involve issues related to water management, do not capture the element of externalities affecting multiple boundary-spanning entities. For instance, a local water shortage or polluted water in a single state pertains to issues confined within one jurisdiction, and water reserved solely for irrigation does not imply any spillover effects across borders.