How spillovers from pollution cleanup in the Ganges affect welfare in Kanpur and Varanasi

Abstract

We study how spillovers from water pollution cleanup in the Ganges affect social welfare in an aggregate economy consisting of Kanpur and Varanasi, two cities through which this river flows. We view pollution cleanup in both cities as a local public good and point out that, if Kanpur cleans up pollution in the Ganges, then Varanasi obtains some spillover benefit and vice versa. In this setting, we first solve for the Nash equilibrium amounts of pollution cleanup in the two cities when decisions about how much pollution to clean up are made simultaneously; next, we determine the equilibrium welfare levels in each city. Second, on the assumption that decisions about how much pollution to clean up are centralized, we compute the amounts of pollution cleanup that maximize aggregate welfare. Finally, we describe an intercity transfer scheme that leads each city to choose noncooperatively in a Nash equilibrium the same pollution cleanup amounts as those that arise when aggregate welfare is maximized.

Decentralized vs. Centralized Water Pollution Cleanup in the Ganges in a Model with Three Cities

“…Given the above observations, Batabyal and Beladi (2023) and Batabyal and Yoo (2023) have recently demonstrated how spillovers from the cleanup of water pollution in the Ganges in the two cities of Kanpur and Varanasi determine whether this cleanup ought to be centralized or decentralized.…”

“…The purpose of our paper is to extend this line of inquiry in two important ways. First, in both Batabyal and Beladi (2023) and Batabyal and Yoo (2023), the number of cities studied that undertake Ganges water pollution cleanup is two, namely, Kanpur and Varanasi. Yet, we know from the work of Sharma et al (2014), Shukla (2017), and Mani (2020) that the city of Prayagraj (formerly called Allahabad) which is situated in between Kanpur and Varanasi on the Ganges---10…”

“…That said, the spillovers studied by Batabyal and Beladi (2023) and Batabyal and Yoo (2023) are implicitly assumed to be positive. However, in general, there is no reason to believe that these spillovers must necessarily be positive.…”