City Research Online

Joint Analysis of the Discount Factor and Payoff Parameters in Dynamic Discrete Choice Games

Komorova, T., Sanches, F., Silva Junior, D. & Sorawoot, S. (2018). Joint Analysis of the Discount Factor and Payoff Parameters in Dynamic Discrete Choice Games. Quantitative Economics, 9(3), pp. 1153-1194. doi: 10.3982/qe675


Most empirical and theoretical econometric studies of dynamic discrete choice models assume the discount factor to be known. We show the knowledge of the discount factor is not necessary to identify parts, or all, of the payoff function. We show the discount factor can be
generically identifed jointly with the payoff parameters. It is known the payoff function cannot nonparametrically identified without any a priori restrictions. Our identification of the discount factor is robust to any normalization choice on the payoff parameters. In IO applications normalizations are usually made on switching costs, such as entry costs and scrap values. We also show that switching costs can be nonparametrically identified, in closed-form, independently of the discount factor and other parts of the payoff function. Our identification strategies are constructive. They lead to easy to compute estimands that are global solutions. We illustrate with a Monte Carlo study and the dataset from Ryan (2012)

Publication Type: Article
Additional Information: This article is published a under the Creative Commons Attribution-NonCommercial license.
Publisher Keywords: Discount Factor, Dynamic Discrete Choice Problem, Identification, Estimation, Switching Costs
Departments: School of Policy & Global Affairs > Economics
SWORD Depositor:
[thumbnail of Joint Analysis of the Discount Factor and Payoff.pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial.

Download (318kB) | Preview


Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email


Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login