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A0151
Title: Testing for time stochastic dominance Authors:  Yoon-Jae Whang - Seoul National University (Korea, South) [presenting]
Abstract: Nonparametric tests are proposed for the null hypothesis of time stochastic dominance. Time stochastic dominance makes a partial order of different prospects over time based on the net present value criteria for general utility and time discount function classes. For example, time stochastic dominance can be used for ranking investment strategies or environmental policies based on the expected net present value of the future benefits. We consider an $L_{p}$ integrated test statistic and derive its large sample distribution. We suggest path-wise bootstrap procedures that allow for time-dependence in a panel data structure. In addition to the least favorable case-based bootstrap method, we describe two approaches, the contact-set approach and the numerical delta method, to enhance the test's power. We prove the asymptotic validity of our testing procedures. We investigate the finite sample performance of the tests in simulation studies. As an illustration, we apply the proposed tests to evaluate the welfare improvement of Thailand's Million Baht Village Fund Program.