Optimally eating a stochastic cake: a recursive utility approach |
| |
| Institution: | 1. IMF Institute, Washington, DC 20431, USA;2. DEEP-HEC, Lausanne University, BFSH1, 1015 Lausanne, Switzerland;1. School of Business, Central South University, Changsha 410083, China;2. Institute of Metal Resources Strategy, Central South University, Changsha 410083, China;1. University of Bologna, Italy;2. Queen’s University, Canada;3. CREATES, Denmark;4. Essex Business School, University of Essex, Wivenhoe Park, Colchester, CO4 3SQ, United Kingdom;1. Engineering Science Department, Universidad Andres Bello, Santiago, Chile;2. Department of Industrial & Systems Engineering, School of Engineering, Pontificia Universidad Católica de Chile, Santiago, Chile |
| |
| Abstract: | In this short paper, uncertainties on resource stock and on technical progress are introduced into an intertemporal equilibrium model of optimal extraction of a non-renewable resource. The representative consumer maximizes a recursive utility function which disentangles between intertemporal elasticity of substitution and risk aversion. A closed-form solution is derived for both the optimal extraction and price paths. The value of the intertemporal elasticity of substitution relative to unity is then crucial in understanding extraction. Moreover, this model leads to a non-renewable resource price following a geometric Brownian motion. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
