Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: We propose an empirical model of dynamic discrete choices with Epstein-Zin preferences, generalizing the well-known Rust model.  Based on the Bellman equation with Epstein-Zin preferences, we show the existence and uniqueness of the value function under the assumption of a preference for early resolution of uncertainty. We apply the framework to the bus engine replacement data and illustrate the proposed simulation method for estimation. We could reject the null hypothesis that Harold Zurcher has the time separable preferences. 

Written with Jay Lu, Yao Luo, and Kota Saito