Attitudes toward the timing of resolution of uncertainty and the existence of recursive utility

Abstract

Abstract This paper studies Epstein and Zin's (1989) intertemporal recursive utility functions with respect to its attitudes toward the timing of uncertainty resolution. Necessary and sufficient conditions are provided for testing to find if a recursive utility generator (W, μ) would prefer early or late resolution of uncertainty. The relationships between the attitudes toward the resolution of uncertainty and existence of recursive utility as a solution to the Koopmans equation are also examined. It is shown that, preferring early resolution implies the existence of an upper semi-continuous recursive utility, while preferring late resolution implies the existence of a lower semi-continuous recursive utility.