Identifying Dynamic Discrete Decision Processes

Posted: 4 Oct 2002

See all articles by Thierry Magnac

Thierry Magnac

Toulouse School of Economics; University of Toulouse 1 - Industrial Economic Institute (IDEI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Abstract

In this paper, we analyse the non parametric identification of dynamic discrete choice models using short-panel data. Our identification methodology is based on the ideas explored in the seminal paper of Hotz and Miller (1993) that Bellman equations can be interpreted as moment conditions. We derive the exact degree of underidentification of these models both in the case where random shocks on preferences are independent over time and in a case with correlated fixed effects. We investigate the necessity and power of various identifying restrictions.

Keywords: Dynamic discrete choice processes, identification

JEL Classification: C25, D91, C14

Suggested Citation

Magnac, Thierry and Thesmar, David, Identifying Dynamic Discrete Decision Processes. Econometrica, Vol. 70, Pp. 801-816, 2002. Available at SSRN: https://ssrn.com/abstract=312261

Thierry Magnac (Contact Author)

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

IZA Institute of Labor Economics ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

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