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Imposing equilibrium restrictions in the estimation of dynamic discrete games

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  • Victor Aguirregabiria
  • Mathieu Marcoux

Abstract

Imposing equilibrium restrictions provides substantial gains in the estimation of dynamic discrete games. Estimation algorithms imposing these restrictions -- MPEC, NFXP, NPL, and variations -- have different merits and limitations. MPEC guarantees local convergence, but requires the computation of high-dimensional Jacobians. The NPL algorithm avoids the computation of these matrices, but -- in games -- may fail to converge to the consistent NPL estimator. We study the asymptotic properties of the NPL algorithm treating the iterative procedure as performed in finite samples. We find that there are always samples for which the algorithm fails to converge, and this introduces a selection bias. We also propose a spectral algorithm to compute the NPL estimator. This algorithm satisfies local convergence and avoids the computation of Jacobian matrices. We present simulation evidence illustrating our theoretical results and the good properties of the spectral algorithm.

Suggested Citation

  • Victor Aguirregabiria & Mathieu Marcoux, 2019. "Imposing equilibrium restrictions in the estimation of dynamic discrete games," Working Papers tecipa-646, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-646
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    Cited by:

    1. Adam Dearing & Jason R. Blevins, 2019. "Efficient and Convergent Sequential Pseudo-Likelihood Estimation of Dynamic Discrete Games," Papers 1912.10488, arXiv.org, revised Apr 2024.
    2. Victor Aguirregabiria & Allan Collard-Wexler & Stephen P. Ryan, 2021. "Dynamic Games in Empirical Industrial Organization," Papers 2109.01725, arXiv.org, revised Sep 2021.
    3. Blevins, Jason R. & Kim, Minhae, 2024. "Nested Pseudo likelihood estimation of continuous-time dynamic discrete games," Journal of Econometrics, Elsevier, vol. 238(2).
    4. Takeshi Fukasawa, 2024. "Fast and simple inner-loop algorithms of static / dynamic BLP estimations," Papers 2404.04494, arXiv.org, revised Oct 2024.
    5. Takeshi Fukasawa, 2024. "Simple method for efficiently solving dynamic models with continuous actions using policy gradient," Papers 2407.04227, arXiv.org.
    6. Pál, László & Sándor, Zsolt, 2023. "Comparing procedures for estimating random coefficient logit demand models with a special focus on obtaining global optima," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    7. FUKASAWA Takeshi & OHASHI Hiroshi, 2023. "Long-run Effect of a Horizontal Merger and Its Remedial Standards," Discussion papers 23001, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Dynamic discrete game; Estimation algorithm; Convergence; Nested pseudo-likelihood;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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