A Note on the Relation between Risk Aversion , Intertemporal Substitution and Timing of the Resolution of Uncertainty

In recent research in the areas of finance (see Campbell and Viceira [2002], Garcia, Luger and Renault [2003]) and macroeconomics (for exemple, Weil [1989], Obstfeld [1994], Tallarini [2000], Epaulard and Pommeret [2003]), preferences of agents are characterized by recursive utility functions (Kreps and Porteus [1978], Epstein and Zin [1989]). This class of preferences permits to disentagle risk aversion from intertemporal substitution. Recent studies show that this separation might be important to explain different phenomena. This treatment of preferences is also supported by the empirical studies (Epstein and Zin [1991]). Otherwise, the class of temporal preferences introduced by Kreps and Porteus [1978] allows the representation of a third concept: the timing of the resolution of uncertainty. The temporal resolution of uncertainty plays a no negligible role on consumption decisions (Blundell and Stoker [1999], Eeckhoudt, Gollier and Treich [2004]). Epstein and Zin [1989], Farmer [1990] and Weil [1990] found a relation between this last concept, risk aversion and intertemporal substitution in the framework of a CES utility and constant relative risk aversion.