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Joint Analysis of the Discount Factor and Payoff Parameters in Dynamic Discrete Choice Models

Komarova, Tatiana, Sanches, Fabio, Silva Junior, Daniel and Srisuma, Sorawoot (2018) Joint Analysis of the Discount Factor and Payoff Parameters in Dynamic Discrete Choice Models Quantitative Economics.

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Abstract

Most empirical and theoretical econometric studies of dynamic discrete choice models assume the discount factor to be known. We show the knowledge of the discount factor is not necessary to identify parts, or even all, of the payoff function. We show the discount factor can be generically identified jointly with the payoff parameters. On the other hand it is known the payo¤ function cannot be nonparametrically identified without any a priori restrictions. Our identification of the discount factor is robust to any normalization choice on the payoff parameters. In IO applications normalizations are usually made on switching costs, such as entry costs and scrap values. We also show that switching costs can be nonparametrically identified, in closed-form, independently of the discount factor and other parts of the payoff function. Our identification strategies are constructive. They lead to easy to compute estimands that are global solutions. We illustrate with a Monte Carlo study and the dataset used in Ryan (2012).

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
NameEmailORCID
Komarova, Tatiana
Sanches, Fabio
Silva Junior, Daniel
Srisuma, Sorawoots.srisuma@surrey.ac.uk
Date : 2018
Copyright Disclaimer : Copyright © 2017 The Authors. Quantitative Economics. The Econometric Society. Licensed under the Creative Commons Attribution-NonCommercial License 4.0
Uncontrolled Keywords : Discount Factor; Dynamic Discrete Choice Problem; Identification; Estimation; Switching Costs
Depositing User : Clive Harris
Date Deposited : 09 Jan 2018 08:35
Last Modified : 14 Mar 2018 15:53
URI: http://epubs.surrey.ac.uk/id/eprint/845561

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