Working papers // Institute of Mathematical Economics 371
In this article we extend the recent literature on overlapping generations with a pollution sector by allowing generations to have a certain pollution perception with regards to the stock of pollution. Pollution perception, assumed to be part of the generations' preferences, can be either a concern for the flow of pollution only, or for the stock, or anything in between. We analyse the different steady states for their implications on intergenerational equity. Our main result is that if generations are only partly concerned with the actual stock of pollution, then periodic cycling will occur. We use the concept of Intergenerational Moral Intuition to analyse this periodic cycling. Our main policy conclusion is that decision makers who would like to achieve intergenerational equitable outcomes must either use the maximin criterion or take decisions spanning several generations in order to avoid the period cycling effect.