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A Simulation Estimator for Dynamic Models of Discrete Choice

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Author Info
V. Joseph Hotz
Robert A. Miller
Seth Sanders
Jeffrey Smith

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Abstract

This paper extends the recent work of Hotz and Miller (1991) on the use of conditional choice probabilities to represent the valuation functions in the estimation of dynamic, discrete choice models. They derive a N1/2 consistent and asymptotically normal estimator of the structural parameters of agents' optimal decision rules that relies on nonparametric estimates of the conditional choice probabilities of future choices. This paper extends their work by deriving a related estimator that does not require the estimation of the conditional choice probabilities of all future paths associated with a current action, but rather only those associated with a simulated path or paths. This estimator is also shown to be N1/2 consistent and asymptotically normal. The derivation of our estimator's asymptotic properties makes use of recent results in Pakes and Pollard (1989). By reducing the number of conditional choice probabilities that must be estimated, this new estimator allows the consideration of models with large numbers of alternative choices. We report results from a Monte Carlo study comparing several versions of our estimator with the maximum likelihood estimator in the context of Rust's (1989) model of bus engine replacement. We also discuss the implications of the Monte Carlo evidence regarding the actual implementation of the estimator.

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Paper provided by Harris School of Public Policy Studies, University of Chicago in its series Working Papers with number 9205.

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Date of creation: May 1992
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Handle: RePEc:har:wpaper:9205

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Related research
Keywords: discrete choice; probability estimation; conditional choice probabilities; valuation functions;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September. [Downloadable!] (restricted)
    Other versions:
  2. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-120, December. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Berkovec, James & Stern, Steven, 1991. "Job Exit Behavior of Older Men," Econometrica, Econometric Society, vol. 59(1), pages 189-210, January. [Downloadable!] (restricted)
  5. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July. [Downloadable!] (restricted)
  6. Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rocío Sánchez-Mangas, 2001. "Estimation Of A Dynamic Discrete Choice Model Of Irreversible Investment," Statistics and Econometrics Working Papers ws015628, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  2. Andrew Sweeting, 2007. "Dynamic Product Repositioning in Differentiated Product Markets: The Case of Format Switching in the Commercial Radio Industry," NBER Working Papers 13522, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Allan Collard-Wexler, 2006. "Demand Fluctuations and Plant Turnover in the Ready-Mix Concrete Industry," Working Papers 06-25, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  4. Victor Aguirregabiria & Pedro mira, 2007. "Dynamic Discrete Choice Structural Models: A Survey," Working Papers tecipa-297, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  5. Han Hong & Matthew Shum, 2000. "A Semiparametric Estimator for Dynamic Optimization Models," Economics Working Paper Archive 461, The Johns Hopkins University,Department of Economics, revised Nov 2001. [Downloadable!]
  6. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  7. Susumu Imai & Neelam Jain & Andrew Ching, 2006. "Bayesian Estimation of Dynamic Discrete Choice Models," Working Papers 1118, Queen's University, Department of Economics. [Downloadable!]
    Other versions:
  8. Daniel Ackerberg, 2009. "A new use of importance sampling to reduce computational burden in simulation estimation," Quantitative Marketing and Economics, Springer, vol. 7(4), pages 343-376, December. [Downloadable!] (restricted)
  9. Victor Aguirregabiria & Pedro Mira, 2005. "A Genetic Algorithm for the Structural Estimation of Games with Multiple Equilibria," Econometrics 0502017, EconWPA. [Downloadable!]
    Other versions:
  10. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI. [Downloadable!]
    Other versions:
  11. María José Moral Rincón, 1998. "La retirada de automóviles en España: Un aplicación de modelos de duración," Investigaciones Economicas, Fundación SEPI, vol. 22(2), pages 225-258, May. [Downloadable!]
  12. Rocío Sánchez-Mangas, 2002. "Another Look At The Estimation Of Dynamic Programming Models With Censored Decision Variables," Statistics and Econometrics Working Papers ws022404, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
  13. Yingyao Hu & Matthew Shum, 2008. "Nonparametric Identification of Dynamic Models with Unobserved State Variables," Economics Working Paper Archive 543, The Johns Hopkins University,Department of Economics. [Downloadable!]
    Other versions:
  14. Michael P. Keane & Kenneth I. Wolpin, 1994. "The solution and estimation of discrete choice dynamic programming models by simulation and interpolation: Monte Carlo evidence," Staff Report 181, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  15. Allan Collard-Wexler, 2006. "Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry," Working Papers 06-08, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  16. V. Joseph Hotz & Lixin Xu & Marta Tienda & Avner Ahituv, 1999. "Are There Returns to the Wages of Young Men from Working While in School?," JCPR Working Papers 101, Northwestern University/University of Chicago Joint Center for Poverty Research.
    Other versions:
  17. Victor Aguirregabiria & Pedro Mira, 2000. "Structural Models Involving Highly Dimensional Fixed Point Problems: An Asymptotically Efficient Two-Stage Estimator," Econometric Society World Congress 2000 Contributed Papers 1702, Econometric Society. [Downloadable!]
  18. V. Aguirregabir, 1996. "Estimation of Dynamic Decision Models with Corner Solutions: A Model of Price and Inventory Decisions," Econometrics 9603002, EconWPA. [Downloadable!]
    Other versions:
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