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Comment: Identification of a Simple Dynamic Discrete Game under Rationalizability

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Victor Aguirregabiria

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Abstract

This paper studies the identification power of rationalizability in a simple dynamic discrete game model. The paper extends to dynamic games some of the results in Aradillas-Lopez and Tamer (2007). The most commonly used equilibrium concept in empirical applications of dynamic games is Markov Perfect Equilibrium (MPE). I study the identification of structural parameters when we replace the MPE assumption with weaker conditions such as rational behavior or rationalizability. I present identification results for a simple dynamic game of market entry-exit with two players. Under the assumption of level-2 rationalizability (i.e., players are rational and they know that they are rational), exclusion restrictions and large-support conditions on the exogenous explanatory variables are sufficient for point-identification of all the structural parameters. Though the model is fully parametric, the key identifying assumptions are nonparametric in nature and it seems that these identification results might be extended to a semiparametric version of the model.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-299.

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Length: 12 pages
Date of creation: 25 Sep 2007
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Handle: RePEc:tor:tecipa:tecipa-299

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Related research
Keywords: Identification; Empirical dynamic discrete games; Rational behavior; Rationalizability.;

Find related papers by JEL classification:
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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  1. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 147-165, January.
  2. Philip A. Haile & Elie Tamer, 2003. "Inference with an Incomplete Model of English Auctions," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 1-51, February. [Downloadable!] (restricted)
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  3. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September. [Downloadable!] (restricted)
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