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Optimally-Transported Generalized Method of Moments

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  • Susanne Schennach
  • Vincent Starck

Abstract

We propose a novel optimal transport-based version of the Generalized Method of Moment (GMM). Instead of handling overidentification by reweighting the data to satisfy the moment conditions (as in Generalized Empirical Likelihood methods), this method proceeds by allowing for errors in the variables of the least mean-square magnitude necessary to simultaneously satisfy all moment conditions. This approach, based on the notions of optimal transport and Wasserstein metric, aims to address the problem of assigning a logical interpretation to GMM results even when overidentification tests reject the null, a situation that cannot always be avoided in applications. We illustrate the method by revisiting Duranton, Morrow and Turner's (2014) study of the relationship between a city's exports and the extent of its transportation infrastructure. Our results corroborate theirs under weaker assumptions and provide insight into the error structure of the variables.

Suggested Citation

  • Susanne Schennach & Vincent Starck, 2025. "Optimally-Transported Generalized Method of Moments," Papers 2511.05712, arXiv.org.
    • Handle: RePEc:arx:papers:2511.05712
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    References listed on IDEAS

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    1. Alfred Galichon, 2016. "Optimal Transport Methods in Economics," Economics Books, Princeton University Press, edition 1, number 10870.
    2. Alfred Galichon, 2016. "Optimal transport methods in economics," Sciences Po Economics Publications (main) hal-03256830, HAL.
    3. Alfred Galichon, 2016. "Optimal transport methods in economics," SciencePo Working papers hal-03256830, HAL.
    4. Hall, Alastair R. & Inoue, Atsushi, 2007. "Corrigendum to: "The large sample behaviour of the generalized method of moments estimator in misspecified models": [Journal of Econometrics 114 (2003) 361-394]," Journal of Econometrics, Elsevier, vol. 141(2), pages 1417-1418, December.
    5. Whitney K. Newey & Richard J. Smith, 2004. "Higher Order Properties of Gmm and Generalized Empirical Likelihood Estimators," Econometrica, Econometric Society, vol. 72(1), pages 219-255, January.
    6. Alfred Galichon, 2016. "Optimal transport methods in economics," Post-Print hal-03256830, HAL.
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