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Semiparametric Identification of the Discount Factor and Payoff Function in Dynamic Discrete Choice Models

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  • Yu Hao
  • Hiroyuki Kasahara
  • Katsumi Shimotsu

Abstract

This paper investigates how the discount factor and payoff functions can be identified in stationary infinite-horizon dynamic discrete choice models. In single-agent models, we show that common nonparametric assumptions on per-period payoffs -- such as homogeneity of degree one, monotonicity, concavity, zero cross-differences, and complementarity -- provide identifying restrictions on the discount factor. These restrictions take the form of polynomial equalities and inequalities with degrees bounded by the cardinality of the state space. These restrictions also identify payoff functions under standard normalization at one action. In dynamic game models, we show that firm-specific discount factors can be identified using assumptions such as irrelevance of other firms' lagged actions, exchangeability, and the independence of adjustment costs from other firms' actions. Our results demonstrate that widely used nonparametric assumptions in economic analysis can provide substantial identifying power in dynamic structural models.

Suggested Citation

  • Yu Hao & Hiroyuki Kasahara & Katsumi Shimotsu, 2025. "Semiparametric Identification of the Discount Factor and Payoff Function in Dynamic Discrete Choice Models," Papers 2507.19814, arXiv.org.
  • Handle: RePEc:arx:papers:2507.19814
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    References listed on IDEAS

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    3. Guido W. Imbens & Whitney K. Newey, 2009. "Identification and Estimation of Triangular Simultaneous Equations Models Without Additivity," Econometrica, Econometric Society, vol. 77(5), pages 1481-1512, September.
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