Optimally eating a stochastic cake: a recursive utility approach
نویسندگان
چکیده
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. © 2002 Elsevier Science B.V. All rights reserved. JEL classification: Q30; D81; Q11
منابع مشابه
Consumption-Based Asset Pricing with Recursive Utility
In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the general method of moment (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, recursive utility permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of i...
متن کاملOn Calibration and Application of Logit-Based Stochastic Traffic Assignment Models
There is a growing recognition that discrete choice models are capable of providing a more realistic picture of route choice behavior. In particular, influential factors other than travel time that are found to affect the choice of route trigger the application of random utility models in the route choice literature. This paper focuses on path-based, logit-type stochastic route choice models, i...
متن کاملStochastic differential utility as the continuous-time limit of recursive utility
We establish a convergence theorem that shows that discrete-time recursive utility, as developed by Kreps and Porteus (1978), converges to stochastic differential utility, as introduced by Duffie and Epstein (1992), in the continuous-time limit of vanishing grid size.
متن کاملAn Anticipative Stochastic Calculus Approach to Pricing in Markets Driven by Lévy Process
We use the Itô-Ventzell formula for forward integrals and Malliavin calculus to study the stochastic control problem associated to utility indifference pricing in a market driven by Lévy processes. This approach allows us to consider general possibly non-Markovian systems, general utility functions and possibly partial information based portfolios. In the special case of the exponential utility...
متن کاملCake Eating, Exhaustible Resource Extraction, Life-cycle Saving, and Non-atomic Games: Existence Theorems for a Class of Optimal Allocation Problems
This paper investigates the problem concerning the existence of a solution to a diverse class of optimal allocation problems which include models of cake eating, exhaustible resource extraction, life-cycle saving, and nonatomic games. A new formulation that encompasses all these diverse models is provided. Examples of these models for which a solution does not exist and the causes of the non-ex...
متن کامل