Consumption Spillovers, Pollution Cleanup in the Ganges, and Welfare in Kanpur and Varanasi

We analyze the nexuses between consumption spillovers and water pollution cleanup in the Ganges river in India. The spillovers arise in two cities through which the Ganges flows, namely, Kanpur and Varanasi, and we focus on the aggregate economy consisting of these two cities. We think of water pollution cleaned up in each city as a local public good. The representative citizen in each city faces a tradeoff between the consumption of a private good and clean river water. First, we determine how much polluted water is cleaned up in each city. Second, we show that the total amount of polluted water cleaned up depends only on the sum of the incomes of the two representative citizens. Third, we compare the amount of water cleaned up in the first part with the cleanup when a social planner undertakes this task. Fourth, on the assumption that the incomes of the two representative citizens are functionally related, we investigate income ranges that result in interior solutions for the water cleanup amounts. Fifth, we study how much polluted water is cleaned up inside and outside the above income ranges. Finally, we show how social welfare from water pollution cleanup in our aggregate economy depends on the income of the representative citizen of one city, namely, Varanasi.