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A Simulation Estimator for Dynamic Models of Discrete Choice

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Listed:
  • Hotz, J.V.
  • Miller, R.A.
  • Sanders, S.
  • Smith, J.

Abstract

This paper analyses a new estimator for the structural parameters of dynamic models of discrete choice. Based on an inversion theorem due to Hotz and Miller (1993), which establishes the existence of a one-to-one mapping between the conditional valuation functions for the dynamic problem and their associated conditional choice probabilities, we exploit simulation techniques to estimate models which do not possess terminal states. In this way our Conditional Choice Simulation (CCS) estimator complements the Conditional Choice Probability (CCP) estimator of Hotz and Miller (1993). Drawing on work in empirical process theory by Pakes and Pollard (1989), we establish its large sample properties, and then conduct a Monte Carlo study of Rust's (1987) model of bus engine replacement to compare its small sample properties with those of Maximum Likelihood (ML).
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Suggested Citation

  • Hotz, J.V. & Miller, R.A. & Sanders, S. & Smith, J., 1992. "A Simulation Estimator for Dynamic Models of Discrete Choice," GSIA Working Papers 1992-13, Carnegie Mellon University, Tepper School of Business.
  • Handle: RePEc:cmu:gsiawp:1992-13
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    References listed on IDEAS

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    1. Spear, Stephen E. & Srivastava, Sanjay & Woodford, Michael, 1990. "Indeterminacy of stationary equilibrium in stochastic overlapping generations models," Journal of Economic Theory, Elsevier, vol. 50(2), pages 265-284, April.
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    4. Evans, George W. & Honkapohja, Seppo & Sargent, Thomas J., 1993. "On the preservation of deterministic cycles when some agents perceive them to be random fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 705-721.
    5. Evans, George W., 1986. "Selection criteria for models with non-uniqueness," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 147-157, September.
    6. Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, pages 255-277.
    7. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    8. Spear, Stephen E., 1984. "Sufficient conditions for the existence of sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 34(2), pages 360-370, December.
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