42 Pages Posted: 9 Dec 2015
Date Written: May 2015
Using results from convex analysis, we investigate a novel approach to identification and estimation of discrete choice models which we call the “Mass Transport Approach” (MTA). We show that the conditional choice probabilities and the choice specific payoffs in these models are related in the sense of conjugate duality, and that the identification problem is a mass transport problem. Based on this, we propose a new two-step estimator for these models; interestingly, the first step of our estimator involves solving a linear program which is identical to the classic assignment (two-sided matching) game of Shapley and Shubik (1971). The application of convex-analytic tools to dynamic discrete choice models, and the connection with two-sided matching models, is new in the literature.
Suggested Citation: Suggested Citation
Chiong, Khai Xiang and Galichon, Alfred and Shum, Matthew, Duality in Dynamic Discrete Choice Models (May 2015). Available at SSRN: https://ssrn.com/abstract=2700773 or http://dx.doi.org/10.2139/ssrn.2700773