Identifying the Discount Factor in Dynamic Discrete Choice Models

Posted: 18 Apr 2016

See all articles by Jaap H. Abbring

Jaap H. Abbring

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); Tinbergen Institute; IZA Institute of Labor Economics

Øystein Daljord

University of Chicago, Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 2016

Abstract

The identification of the discount factor in dynamic discrete models is important for counterfactual analysis, but hard. Existing approaches either take the discount factor to be known or rely on high level exclusion restrictions that are difficult to interpret and hard to satisfy in applications, in particular in industrial organization. We provide identification results under an exclusion restriction on primitive utility that is more directly useful to applied researchers. We also show that our and existing exclusion restrictions limit the choice and state transition probability data in different ways; that is, they give the model nontrivial and distinct empirical content.

Keywords: discount factor, dynamic discrete choice, empirical content, identification

JEL Classification: C14, C25, D91, D92

Suggested Citation

Abbring, Jaap H. and Daljord, Øystein, Identifying the Discount Factor in Dynamic Discrete Choice Models (February 2016). CEPR Discussion Paper No. DP11133, Available at SSRN: https://ssrn.com/abstract=2766424

Jaap H. Abbring (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/abbring/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/abbring/

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Øystein Daljord

University of Chicago, Booth School of Business ( email )

Chicago, IL 60637
United States
7738342146 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/oystein.daljord/index.html

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