Optimal consumption and the timing of the resolution of uncertainty.

Summary This paper explores the effect of incremental resolution of uncertainty over time on optimal consumption paths. The general model applies to environmental resource consumption in the presence of uncertainty about the size of the resource. What is the effect of the prospect of receiving information in t+1 on consumption in t? The authors show that the effect is positive if, and only if, the marginal utility is convex. This result is valid only if the interest rate is equal to the discount rate of utility, but other cases are also studied. The intuition is that an early resolution of uncertainty allows for a better diversification of risk over time.