How long to eat a cake of unknown size? Optimal time horizon under uncertainty

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How long to eat a cake of unknown size? Optimal time horizon under uncertainty

Author Info

Ramesh C. Kumar

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Ramesh Chander Kumar

Abstract

This paper is concerned with the determination of the optimal time horizon for the cake-eating problem under uncertainty. It is shown that if the uncertain exhaustible resource stock is a discrete random variable admitting at most a finite number of values, the optimal planning horizon is infinite (finite) according as the marginal utility of extraction-cum-consumption is infinite (a finite positive value) as the latter approaches zero, thereby extending the scope of the similar result under perfect certainty. Other results show that uncertainty will generally lengthen the planning horizon, implying a more conservative extraction policy under uncertainty, and that the extraction policy aimed at extracting an amount equal to the expected value of the uncertain resource stock takes longer than the expected value of the optimal planning horizon.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 35 (2002)
Issue (Month): 4 (November)
Pages: 843-853
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Handle: RePEc:cje:issued:v:35:y:2002:i:4:p:843-853

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Related research
Keywords:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Murray C. Kemp & Ngo Van Long, 2007. "Extracting Several Resource Deposits of Unknown Size: Optimal Order," CIRANO Working Papers 2007s-10, CIRANO. [Downloadable!]

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This page was last updated on 2009-12-21.

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