A Theoretical Analysis of Costs, Waste Treatment, Pollution in the Ganges, and Leather Production by Tanneries in Kanpur, India

We theoretically analyze the interaction between two representative and real tanneries, denoted by A and B, that are located on the same bank of the Ganges River in Kanpur, India. Tannery A is situated upstream from tannery B. Both tanneries produce leather and leather production by tannery A also gives rise to chemical waste that adversely affects the cost incurred by tannery B in producing leather. In this setting, we perform four tasks. First, we determine the amount of chemical waste and the leather produced by tanneries A and B in a competitive equilibrium. Second, we explain why this competitive equilibrium is inefficient from a societal standpoint. Third, we ascertain the socially optimal amount of leather produced by the two tanneries. Finally, we illustrate the working of our theoretical model with a specific example in which we use explicit functional forms and numbers