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Difficulty: Very hardEnvironmental Degradation, Issues, and Resource Management

Allocating revenues from Nigeria's Ecological Fund as unconditional block grants to state governments effectively internalizes the negative environmental externalities of natural resource extraction and resolves the Tragedy of the Commons in affected regions.

Answer: Answer

Answer

The statement is False. Unconditional fiscal grants to state governments do not alter the private cost incentives of polluting entities or establish excludable property rights, meaning negative externalities remain uninternalized and the Tragedy of the Commons persists.
The statement is false because internalizing negative externalities requires aligning private marginal costs with social marginal costs through market mechanisms (e.g., Pigouvian taxes, user fees, or cap-and-trade systems) or enforcing clear property rights. Distributing funds from Nigeria's Ecological Fund as unconditional block grants to states provides public funds for general remediation but fails to impose costs on polluters or prevent overexploitation of open-access environmental resources.

Step-by-Step Solution

1
Identify the economic nature of environmental externalities and common-pool resource degradation.
Negative externalities occur when private marginal costs are lower than social marginal costs (PMC<SMCPMC < SMC), while the Tragedy of the Commons arises from non-excludable and rivalrous resource use.
Resolving market failures requires mechanisms that directly adjust the cost-benefit incentives of resource users or establish clear property rights.
2
Analyze the impact of unconditional block grants from the Ecological Fund on polluters and extractors.
Unconditional grants increase government revenue but impose no price, tax, fine, or quantitative limit on private extractors and polluters.
Because private marginal costs of environmental degradation remain unadjusted for the firms causing the damage, market failure persists.
3
Conclude the truth value of the assertion.
The assertion that unconditional grants internalize externalities and eliminate the Tragedy of the Commons is economically false.
Direct economic policy tools like Pigouvian taxes or pollution charges are required to internalize external costs; general intergovernmental transfers do not achieve this objective.

Key Concept

Market Failure, Externalities, and Resource Management Policy
Estimated Time:1m 30s
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Topics

Environmental Degradation, Issues, and Resource Management