Pollution perception: A challenge for intergenerational equity

In this article we extend the recent literature on overlapping generations and pollution by allowing generations to perceive the level of pollution differently than the actual level of pollution. We call this pollution perception. Pollution perception can visualize itself as either a concern for the flow of pollution only, or for the stock, or a combination of both. We derive this extension based on empirical evidence from recent advances in behavioural economics. Pollution perception has not only significant consequences for the steady state levels of pollution and capital, but we also find a qualitative change in the dynamics from similar models without pollution perception [A. John, R. Pecchenino, An overlapping generations model of growth and the environment, Econ. J. 104 (1994) 1393-1410]. Specifically, we derive optimal non-linear dynamics through complex eigenvalues and Hopf or Flip bifurcations for a large set of parameters. This leads to violations of two standard criteria of sustainability, suggesting that pollution perception can be another source of intergenerational inequity.