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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, April 2, 2019
4:00pm to 5:00pm
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Baxter B125
Identifying the Discount Factor in Dynamic Discrete Choice Models
Jaap Abbring, Professor of Econometrics, University of Tilburg,

Abstract: Empirical applications of dynamic discrete choice models usually either take the discount factor to be known or rely on ad hoc functional form assumptions to identify and estimate it. We give identification results under economically motivated exclusion restrictions on primitive utilities. We show that each such exclusion restriction leads to an easily interpretable moment condition with the discount factor as the only unknown parameter. The identified set of discount factors that solves this condition is finite, but not necessarily a singleton. Consequently, in contrast to common intuition, an exclusion restriction does not provide point identification. In applications, multiple exclusion restrictions are often available. The discount factor can be set estimated from the corresponding moment conditions using existing methods without solving the choice model. Finally, we show that exclusion restrictions have nontrivial empirical content: The implied moment conditions impose restrictions on choices that are absent from the unconstrained model.

Click here to see the full paper, written with Øystein Daljord.

For more information, please contact Sabrina Hameister by phone at 626-395-4228 or by email at [email protected].