Working Paper: CEPR ID: DP11133
Authors: Jaap H. Abbring; Ystein Daljord
Abstract: The identification of the discount factor in dynamic discrete models is important for counterfactual analysis, but hard. Existing approaches either take the discount factor to be known or rely on high level exclusion restrictions that are difficult to interpret and hard to satisfy in applications, in particular in industrial organization. We provide identification results under an exclusion restriction on primitive utility that is more directly useful to applied researchers. We also show that our and existing exclusion restrictions limit the choice and state transition probability data in different ways; that is, they give the model nontrivial and distinct empirical content.
Keywords: discount factor; dynamic discrete choice; empirical content; identification
JEL Codes: C14; C25; D91; D92
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exclusion restrictions on primitive utility (D11) | identification of the discount factor (H43) |
| appropriate restrictions (P14) | unique determination of model primitives from observed data (C51) |
| shifts in expected excess surplus contrasts (D11) | influence on the discount factor (E43) |
| exclusion restriction proposed (C24) | unique identification of the discount factor (H43) |
| different restrictions (D45) | distinct insights from data (C80) |