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A Genetic Algorithm for the Structural Estimation of Games with Multiple Equilibria

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Author Info

  • VICTOR AGUIRREGABIRIA

    ()
    (Department of Economics, Boston University)

  • PEDRO MIRA

    ()
    (Centro de Estudios Monetarios y Financieros (CEMFI))

Abstract

This paper proposes an algorithm to obtain maximum likelihood estimates of structural parameters in discrete games with multiple equilibria. The method combines a genetic algorithm (GA) with a pseudo maximum likelihood (PML) procedure. The GA searches efficiently over the huge space of possible combinations of equilibria in the data. The PML procedure avoids the repeated computation of equilibria for each trial value of the parameters of interest. To test the ability of this method to get maximum likelihood estimates, we present a Monte Carlo experiment in the context of a game of price competition and collusion.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-001.

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Length: 48 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-001

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Keywords: Empirical games; Maximum likelihood estimation; Multiple equilibria; Genetic algorithms;

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References

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  1. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
  2. Hotz, V Joseph & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1994. "A Simulation Estimator for Dynamic Models of Discrete Choice," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 265-89, April.
  3. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business.
  4. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
  5. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA.
  6. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
  7. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers.
  8. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
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Cited by:
  1. Viauroux, Christelle, 2007. "Structural estimation of congestion costs," European Economic Review, Elsevier, vol. 51(1), pages 1-25, January.
  2. Sumon Datta & K. Sudhir, 2012. "Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety," Cowles Foundation Discussion Papers 1851, Cowles Foundation for Research in Economics, Yale University, revised Sep 2012.

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