TY - JOUR
T1 - Optimally eating a stochastic cake
T2 - A recursive utility approach
AU - Epaulard, Anne
AU - Pommeret, Aude
PY - 2003/5
Y1 - 2003/5
N2 - 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.
AB - 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.
KW - Non-renewable resource
KW - Recursive utility
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=0037616585&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-0037616585&origin=recordpage
U2 - 10.1016/S0928-7655(02)00022-2
DO - 10.1016/S0928-7655(02)00022-2
M3 - RGC 21 - Publication in refereed journal
SN - 0928-7655
VL - 25
SP - 129
EP - 139
JO - Resource and Energy Economics
JF - Resource and Energy Economics
IS - 2
ER -