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Identification and Estimation of Dynamic Games

Pesendorfer, Martin ORCID: 0000-0002-0547-8711 and Schmidt-Dengler, Philipp (2003) Identification and Estimation of Dynamic Games. . National Bureau of Economic Research, Cambridge, MA., USA.

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Abstract

This paper studies the identification problem in infinite horizon Markovian games and proposes a generally applicable estimation method. Every period firms simultaneously select an action from a finite set. We characterize the set of Markov equilibria. Period profits are a linear function of equilibrium choice probabilities. The question of identification of these values is then reduced to the existence of a solution to this linear equation system. We characterize the identification conditions. We propose a simple estimation procedure which follows the steps in the identification argument. The estimator is consistent, asymptotic normally distributed, and efficient. We have collected quarterly time series data on pubs, restaurants, coffeehouses, bakeries and carpenters for two Austrian towns between 1982 and 2002. A dynamic entry game is estimated in which firms simultaneously decide whether to enter, remain active, or exit the industry. The period profit estimates are used to simulate the equilibrium behavior under a policy experiment in which a unit tax is imposed on firms deciding to enter the industry.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org
Additional Information: © 2003 Martin Pesendorfer and Philipp Schmidt-Dengler
Divisions: Economics
STICERD
Subjects: H Social Sciences > HB Economic Theory
JEL classification: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
D - Microeconomics > D9 - Intertemporal Choice and Growth > D99 - Other
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
Date Deposited: 12 May 2008 16:42
Last Modified: 01 Oct 2024 04:03
URI: http://eprints.lse.ac.uk/id/eprint/4826

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