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Imposing Equilibrium Restrictions in the Estimation of Dynamic Discrete Games (with Victor Aguirregabiria)

CIREQ-McGill Seminar 2019-2020
joint with the Department of Economics, McGill University

Leacock 429 (McGill University, 855 Sherbrooke West)

Organizer Laura Lasio (McGill University)

 


 
RÉSUMÉ

Imposing equilibrium restrictions provides substantial gains in the estimation of dynamic discrete games. Estimation algorithms imposing these restrictions – MPEC, NFXP, NPL, and variations – have different merits and limitations. MPEC guarantees local convergence, but requires the computation of high-dimensional Jacobians. The NPL algorithm avoids the computation of these matrices, but – in games – may fail to converge to the consistent NPL estimator. We study the asymptotic properties of the NPL algorithm treating the iterative procedure as performed in finite samples. We find that there are always samples for which the algorithm fails to converge, and this introduces a selection bias. We also propose a spectral algorithm to compute the NPL estimator. This algorithm satisfies local convergence and avoids the computation of Jacobian matrices. We present simulation evidence illustrating our theoretical results and the good properties of the spectral algorithm.

 

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