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A Semiparametric Estimator for Dynamic Optimization Models

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Author Info
Han Hong
Matthew Shum

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Abstract

We develop a new estimation methodology for dynamic optimization models with unobserved state variables Our approach is semiparametric in the sense of not requiring explicit parametric assumptions to be made concerning the distribution of these unobserved state variables We propose a two-step pairwise-difference estimator which exploits two common features of dynamic optimization problems: (1) the weak monotonicity of the agent's decision (policy) function in the unobserved state variables conditional on the observed state variables; and (2) the state-contingent nature of optimal decision-making which implies that conditional on the observed state variables the variation in observed choices across agents must be due to randomness in the unobserved state variables across agents We apply our estimator to a model of dynamic competitive equilibrium in the market for milk production quota in Ontario Canada

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Publisher Info
Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 461.

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Date of creation: May 2000
Date of revision: Nov 2001
Handle: RePEc:jhu:papers:461

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  1. Benkard, C. Lanier & Bajari, Patrick, 2001. "Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach," Research Papers 1691, Stanford University, Graduate School of Business. [Downloadable!]
  2. 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)
  3. J. Levin & P. Bajari, 2004. "Estimating Dynamic Models of Imperfect Competition," 2004 Meeting Papers 579, Society for Economic Dynamics. [Downloadable!]
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  4. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Patrick Bajari & C. Lanier Benkard, 2001. "Demand Estimation With Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach," Working Papers 01010, Stanford University, Department of Economics. [Downloadable!]
  6. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-36, June. [Downloadable!] (restricted)
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  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  8. Rosa L. Matzkin, 2003. "Nonparametric Estimation of Nonadditive Random Functions," Econometrica, Econometric Society, vol. 71(5), pages 1339-1375, 09. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
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  10. Thierry Magnac & David Thesmar, 2002. "Identifying Dynamic Discrete Decision Processes," Econometrica, Econometric Society, vol. 70(2), pages 801-816, March. [Downloadable!] (restricted)
  11. Ahn, Hyungtaik & Powell, James L., 1993. "Semiparametric estimation of censored selection models with a nonparametric selection mechanism," Journal of Econometrics, Elsevier, vol. 58(1-2), pages 3-29, July. [Downloadable!] (restricted)
  12. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
  13. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA. [Downloadable!]
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  14. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Powell, James L & Stock, James H & Stoker, Thomas M, 1989. "Semiparametric Estimation of Index Coefficients," Econometrica, Econometric Society, vol. 57(6), pages 1403-30, November. [Downloadable!] (restricted)
  16. Honore, Bo E. & Powell, James L., 1994. "Pairwise difference estimators of censored and truncated regression models," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 241-278. [Downloadable!] (restricted)
  17. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  18. Patrick Bajari & C. Lanier Benkard, 2001. "Demand Estimation With Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach," NBER Technical Working Papers 0272, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Hotz, V Joseph & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1994. "A Simulation Estimator for Dynamic Models of Discrete Choice," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 265-89, April. [Downloadable!] (restricted)
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