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Semiparametric Estimation of Markov Decision Processeswith Continuous State Space

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  • Oliver Linton
  • Sorawoot Srisuma

Abstract

We propose a general two-step estimation method for the structural parameters ofpopular semiparametric Markovian discrete choice models that include a class ofMarkovian Games andallow for continuous observable state space. The estimation procedure is simpleas it directly generalizes the computationally attractive methodology of Pesendorferand Schmidt-Dengler (2008) that assumed finite observable states. This extensionis non-trivial as the value functions, to be estimated nonparametrically in the firststage, are defined recursively in a non-linear functional equation. Utilizingstructural assumptions, we show how to consistently estimate the infinitedimensional parameters as the solution to some type II integral equations, thesolving of which is a well-posed problem. We provide sufficient set of primitives toobtain root-T consistent estimators for the finite dimensional structural parametersand the distribution theory for the value functions in a time series framework.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2010/550.

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Date of creation: Aug 2010
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Handle: RePEc:cep:stiecm:/2010/550

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Discrete Markov Decision Models; Kernel Smoothing; Markovian Games; Semi-parametric Estimation; Well-Posed Inverse Problem.D;

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  1. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc.
  2. Xiaohong Chen & Demian Pouzo, 2009. "Efficient estimation of semiparametric conditional moment models with possibly nonsmooth residuals," CeMMAP working papers CWP20/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Pedro Mira & Victor Aguirregabiria, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers wp2007_0711, CEMFI.
  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.
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  7. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI.
  8. Xiaohong Chen & Oliver Linton & Ingrid Van Keilegom, 2003. "Estimation of Semiparametric Models when the Criterion Function Is Not Smooth," Econometrica, Econometric Society, vol. 71(5), pages 1591-1608, 09.
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  10. Mireia Jofre-Bonet & Martin Pesendorfer, 2001. "Estimation of a Dynamic Auction Game," NBER Working Papers 8626, National Bureau of Economic Research, Inc.
  11. V. Joseph Hotz & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1992. "A Simulation Estimator for Dynamic Models of Discrete Choice," Working Papers 9205, Harris School of Public Policy Studies, University of Chicago.
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  14. Xiaohong Chen & Demian Pouzo, 2008. "Efficient Estimation of Semiparametric Conditional Moment Models with Possibly Nonsmooth Residuals," Cowles Foundation Discussion Papers 1640R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2009.
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  17. Kasahara, Hiroyuki & Shimotsu, Katsumi, 2008. "Pseudo-likelihood estimation and bootstrap inference for structural discrete Markov decision models," Journal of Econometrics, Elsevier, vol. 146(1), pages 92-106, September.
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  23. Chen, Xiaohong & Pouzo, Demian, 2009. "Efficient estimation of semiparametric conditional moment models with possibly nonsmooth residuals," Journal of Econometrics, Elsevier, vol. 152(1), pages 46-60, September.
  24. Martin Pesendorfer & Philipp Schmidt-Dengler, 2008. "Asymptotic Least Squares Estimators for Dynamic Games -super-1," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 901-928.
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Cited by:
  1. Armstrong, Timothy B. & Bertanha, Marinho & Hong, Han, 2014. "A fast resample method for parametric and semiparametric models," Journal of Econometrics, Elsevier, vol. 179(2), pages 128-133.

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