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Bayesian Estimation of Dynamic Discrete Choice Models

Author

Listed:
  • Susumu Imai
  • Neelam Jain

    (Economics Northern Illinois University)

Abstract

We propose a new methodology for structural estimation of infinite horizon dynamic discrete choice models. We combine the dynamic programming (DP) solution algorithm with the Bayesian Markov chain Monte Carlo algorithm into a single algorithm that solves the DP problem and estimates the parameters simultaneously. As a result, the computational burden of estimating a dynamic model becomes comparable to that of a static model. Another feature of our algorithm is that even though the number of grid points on the state variable is small per solution-estimation iteration, the number of effective grid points increases with the number of estimation iterations. This is how we help ease the "curse of dimensionality." We simulate and estimate several versions of a simple model of entry and exit to illustrate our methodology. We also prove that under standard conditions, the parameters converge in probability to the true posterior distribution, regardless of the starting values. Copyright 2009 The Econometric Society.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Susumu Imai & Neelam Jain, 2005. "Bayesian Estimation of Dynamic Discrete Choice Models," 2005 Meeting Papers 432, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:432
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    References listed on IDEAS

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    More about this item

    Keywords

    Structural estimation; Dynamic programming; MCMC;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L00 - Industrial Organization - - General - - - General

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