ECONOMETRICS: Identification of the Discount Factor in Dynamic Discrete Choice Models; Professor Katsumi Shimotsu (University of Tokyo)

Abstract

We analyze the identification of the discount factor in standard stationary infinite horizon dynamic discrete choice models. In single-agent models, the discount factor is identified up to a finite number of points under an exclusion restriction. The cardinality of the identified set is no larger than the cardinality of the state space. Further, the commonly used functional form assumptions on period utility function, such as additivity in a dummy variable or linearity in a state variable, provide identifying restrictions even when no exclusion restrictions are available. In multiple-agent models, the discount factor is identified up to a finite number of points under assumptions on the period profit function, including normalization at one choice, irrelevance of other firms' lagged actions, and exchangeability of other firms' actions.