Air Pollution, Tradable Emission Permits, Environmental Maintenance and Theoretical Overlapping Generations General Equilibrium Model

This paper presents within the framework of an Overlapping Generation (OLG) model, how Environmental as production factor another linked-assumptions can be introduced step by step in a theoretical general equilibrium model. Indeed, in the first part, there is no environmental policy in the presence of externality associated with pollution. Then, when an environmental policy is decided and introduced by the Public Authority into the economy through a System of Tradable Emission Permits (STEP), we assume a three factors or ‘3-dimensions’ OLG General Equilibrium model : Capital – Labor – Environment (Where private ownership of Environment through property rights or emission permits are treated as a production Factor). However, the study of tradable emission permits characteristics showed that this instrument of environmental policy can also be considered as a financial (an investment) asset for households.