A1940
Title: Semiparametric identification of the discount factor and payoff function in dynamic discrete choice models
Authors: Katsumi Shimotsu - University of Tokyo (Japan) [presenting]
Hiroyuki Kasahara - University of British Columbia (Canada)
Yu Hao - University of Hong Kong (Hong Kong)
Abstract: The aim is to investigate how the discount factor and payoff function can be identified in stationary infinite-horizon dynamic discrete choice models. In single-agent models, common nonparametric assumptions on per-period payoffssuch as homogeneity of degree one, monotonicity, concavity, zero cross-differences, and complementarityprovide identifying restrictions on the discount factor. These restrictions take the form of polynomial equalities and inequalities with degree bounded by the cardinality of the state space. Furthermore, these restrictions can identify the discount factor and the payoff function even without a normalization on the payoff at one action. In dynamic game models, firm-specific discount factors can be identified under assumptions such as irrelevance of other firms' lagged actions, exchangeability, and the independence of adjustment costs from other firms' actions. The results demonstrate that widely used nonparametric assumptions in economic analysis can provide substantial identifying power in dynamic structural models.
