Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)

48 Pages Posted: 20 Jul 2004

See all articles by Ariel Pakes

Ariel Pakes

National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Michael Ostrovsky

Stanford Graduate School of Business

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Date Written: May 2004

Abstract

This paper considers the problem of estimating the distribution of payoffs in a discrete dynamic game, focusing on models where the goal is to learn about the distribution of firms' entry and exit costs. The idea is to begin with non parametric first stage estimates of entry and continuation values obtained by computing sample averages of the realized continuation values of entrants who do enter and incumbents who do continue. Under certain assumptions these values are linear functions of the parameters of the problem, and hence are not computationally burdensome to use. Attention is given to the small sample problem of estimation error in the non parametric estimates and this leads to a preference for use of particularly simple estimates of continuation values and moments.

Suggested Citation

Pakes, Ariel and Ostrovsky, Michael and Berry, Steven T., Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples) (May 2004). Available at SSRN: https://ssrn.com/abstract=566864 or http://dx.doi.org/10.2139/ssrn.566864

Ariel Pakes (Contact Author)

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