Working Paper: CEPR ID: DP6733
Authors: Ron N. Borkovsky; Ulrich Doraszelski; Yaroslav Kryukov
Abstract: This paper provides a step-by-step guide to solving dynamic stochastic games using the homotopy method. The homotopy method facilitates exploring the equilibrium correspondence in a systematic fashion; it is especially useful in games that have multiple equilibria. We discuss the theory of the homotopy method and its implementation and present two detailed examples of dynamic stochastic games that are solved using this method.
Keywords: computation; dynamic stochastic games; homotopy method; markov-perfect equilibrium
JEL Codes: C63; C73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| homotopy method (C60) | identification of multiple equilibria (D59) |
| homotopy method (C60) | systematic exploration of equilibrium correspondences (D50) |
| varying model parameters (C51) | systematic exploration of equilibrium correspondences (D50) |
| understanding the set of equilibria (D50) | inform policy experiments (C93) |
| policy changes (J18) | one of several equilibria being played (D50) |
| characterizing equilibria (D50) | help bound potential outcomes (D80) |
| homotopy method (C60) | more complete picture of equilibrium set (D50) |