Research note: A note on pollution cleanup investments, signalling, Ganges River resilience, and lessons for Europe
Research note: A note on pollution cleanup investments, signalling, Ganges River resilience, and lessons for Europe

Summary/Abstract: We study pollution cleanup investments, signalling, and the resilience of the Ganges River when investors differ in capability and cleanup projects differ in their ability to enhance resilience. First, we derive the minimal level of signalling necessary to sustain a separating equilibrium in which the government agency can distinguish between more and less capable investors. Larger cleanup efforts require greater signalling, although the marginal increase in signalling declines as the scale of cleanup expands. Second, we analyse the benchmark case in which signalling is impossible. Here, more and less capable investors choose the more resilience enhancing cleanup projects because the expected payment from these projects is larger than the payment from less resilience enhancing projects. Hence, eliminating signalling raises investor welfare and encourages projects that are more beneficial for the resilience of the Ganges.

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