Abstract

http://ssrn.com/abstract=1989027
 


 



A Test of the Extreme Value Type I Assumption in the Bus Engine Replacement Model


Bradley Larsen


Stanford University - Department of Economics; National Bureau of Economic Research (NBER); eBay Research Labs

Florian Oswald


UCL Department of Economics

Gregor Reich


University of Zurich - Department of Business Administration

Dan Wunderli


University of Zurich - Department of Economics

December 10, 2011


Abstract:     
Nearly every dynamic discrete choice model relies, for computational simplicity, on the assumption that underlying utility shocks are distributed extreme value type I. In this note we test this assumption in the context of the Rust (1987) classical model of bus engine replacement and find that, for most specifications tested, extreme value type I errors cannot be rejected. In a case where extreme value type I errors can be rejected, our more flexible estimation yields significantly different choice probabilities at some regions of the state space.

Number of Pages in PDF File: 10

Keywords: Dynamic discrete choice, Extreme value type I

JEL Classification: C25, C61

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Date posted: January 21, 2012  

Suggested Citation

Larsen, Bradley and Oswald, Florian and Reich, Gregor and Wunderli, Dan, A Test of the Extreme Value Type I Assumption in the Bus Engine Replacement Model (December 10, 2011). Available at SSRN: http://ssrn.com/abstract=1989027 or http://dx.doi.org/10.2139/ssrn.1989027

Contact Information

Bradley Larsen (Contact Author)
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
HOME PAGE: http://www.stanford.edu/~bjlarsen/research.html
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
eBay Research Labs ( email )
2065 Hamilton Avenue
San Jose, CA
United States
Florian Oswald
UCL Department of Economics ( email )
Gower Street
London
United Kingdom
Gregor Reich
University of Zurich - Department of Business Administration ( email )
Moussonstrasse 15
Zurich, 8044
Switzerland
Dan Wunderli
University of Zurich - Department of Economics ( email )
Zürich, CH-8006
Switzerland
+41 44 634 37 38 (Phone)
HOME PAGE: http://web.mac.com/dan.wunderli
Feedback to SSRN


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