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Identification and estimation of dynamic games

Pesendorfer, Martin and Schmidt-Dengler, Philipp (2003) Identification and estimation of dynamic games. 3965. Centre for Economic Policy Research, London, UK.

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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 behaviour under a policy experiment in which a unit tax is imposed on firms deciding to enter the industry.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.cepr.org
Additional Information: © 2003 Martin Pesendorfer and Philipp Schmidt-Dengler
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General
D - Microeconomics > D9 - Intertemporal Choice and Growth > D99 - Other
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 3965
Date Deposited: 04 Jun 2008 11:50
URL: http://eprints.lse.ac.uk/5333/

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