Identification and Estimation of Dynamic Games

Martin Pesendorfer and Philipp Schmidt-Dengler

No 3965, CEPR Discussion Papers from Centre for Economic Policy Research

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 that 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.

Keywords: Estimation of dynamic oligopoly; Entry games (search for similar items in EconPapers)
JEL-codes: D43 D99 L10 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-ent and nep-mic
References: View complete reference list from CitEc
Citations: View citations in EconPapers (60)

Downloads: (external link)
https://cepr.org/publications/DP3965 (application/pdf)

Related works:
Working Paper: Identification and Estimation of Dynamic Games (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3965

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3965

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().