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Structural Versus Reduced-Form Estimation of Optimal Stopping Problems

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  • Bill Provencher

Abstract

In this paper I examine several statistical, interpretive, and policy implications of reduced-form (probit or logit) estimation of optimal stopping problems. The discussion proceeds in the context of an examination of the timber harvest decision of nonindustrial private forest (NIPF) owners. For a large class of optimal stopping problems a reduced-form model which closely approximates the statistical performance of its structural counterpart is readily found. Still, failure to properly interpret the relationship between the reduced-form model and the underlying optimal stopping problem invites flawed econometric analysis and inappropriate interpretation of reduced-form coefficients. Copyright 1997, Oxford University Press.

Suggested Citation

  • Bill Provencher, 1997. "Structural Versus Reduced-Form Estimation of Optimal Stopping Problems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 357-368.
  • Handle: RePEc:oup:ajagec:v:79:y:1997:i:2:p:357-368
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    File URL: http://hdl.handle.net/10.2307/1244135
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    Cited by:

    1. Marielle Brunette & Jérôme Foncel & Nazindigouba Eric Kéré, 2014. "Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners," Working Papers halshs-00981350, HAL.
    2. Yoo, Do-il, 2012. "Individual and Social Learning in Bio-technology Adoption: The Case of GM Corn in the U.S," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124975, Agricultural and Applied Economics Association.
    3. repec:eee:jeborg:v:136:y:2017:i:c:p:107-124 is not listed on IDEAS
    4. Gregory, S. Amacher & Christine Conway, M. & Sullivan, Jay & Gregory, S. Amacher, 2003. "Econometric analyses of nonindustrial forest landowners: Is there anything left to study?," Journal of Forest Economics, Elsevier, vol. 9(2), pages 137-164.
    5. Newman, D.H., 2002. "Forestry's golden rule and the development of the optimal forest rotation literature," Journal of Forest Economics, Elsevier, vol. 8(1), pages 5-27.
    6. Odening, Martin & Musshoff, Oliver & Utesch, Volker, 2004. "Der Wechsel vom konventionellen zum ökologischen Landbau: Eine investitionstheoretische Betrachtung," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 53(6).
    7. Odening, Martin & Musshoff, Oliver & Huettel, Silke, 2003. "Empirische Validierung von Realoptionsmodellen," Working Paper Series 18825, Humboldt University Berlin, Department Agricultural Economics.
    8. Hicks, Robert L. & Schnier, Kurt E., 2006. "A Spatial Model of Dolphin Avoidance in the Eastern Tropical Pacific Ocean," 2006 Annual meeting, July 23-26, Long Beach, CA 21290, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Pietola, Kyosti & Vare, Minna & Oude Lansink, Alfons G.J.M., 2002. "Farmers' Exit Decisions and Early Retirement Programs in Finland," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24825, European Association of Agricultural Economists.
    10. Hicks, Robert L. & Schnier, Kurt E., 2008. "Eco-labeling and dolphin avoidance: A dynamic model of tuna fishing in the Eastern Tropical Pacific," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 103-116, September.

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