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 °ow of pollution only, or for the stock,
or a combination of both. We derive this extension based on empirical evidence
from recent advances in behavioral economics.
Pollution perception has not only signifficant consequences for the steady state
levels of pollution and capital, but we also and a qualitative change in the dynamics
from similar models without pollution perception [23]. 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.