Computing Moment Inequality Models Using Constrained Optimization

22 Pages Posted: 21 Jun 2017 Last revised: 1 Aug 2017

See all articles by Baiyu Dong

Baiyu Dong

University of Southern California - Department of Economics

Yu-Wei Hsieh

University of Southern California - Department of Economics; USC Dornsife Institute for New Economic Thinking

Matthew Shum

California Institute of Technology

Date Written: June 22, 2017

Abstract

Inference for moment inequality models is computationally demanding, and often involves time-consuming grid search. By exploiting the equivalent formulations between unconstrained and constrained optimization, we establish new ways to compute the identified set and its confidence set in moment inequality models which overcome some of these computational hurdles. In simulations, using both linear and nonlinear moment inequality models, we show that our methods can find significantly better solutions and save considerable computing resources relative to conventional grid search. Our methods are user-friendly and can be implemented using a variety of available software packages.

Keywords: Moment Inequality Models, Constrained Optimization, MPEC, MPCC, Partial Identification, Computing Identified Set, Confidence Set

JEL Classification: C61, C63

Suggested Citation

Dong, Baiyu and Hsieh, Yu-Wei and Shum, Matthew, Computing Moment Inequality Models Using Constrained Optimization (June 22, 2017). USC-INET Research Paper No. 17-21. Available at SSRN: https://ssrn.com/abstract=2990826 or http://dx.doi.org/10.2139/ssrn.2990826

Baiyu Dong

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

Yu-Wei Hsieh (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

USC Dornsife Institute for New Economic Thinking ( email )

3620 S. Vermont Avenue, KAP 364F
Los Angeles, CA 90089-0253
United States

Matthew Shum

California Institute of Technology ( email )

Pasadena, CA 91125
United States

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