CLOSED-FORM IDENTIFICATION OF DYNAMIC DISCRETE CHOICE MODELS WITH PROXIES FOR UNOBSERVED STATE VARIABLES

Yingyao Hu and Yuya Sasaki

Econometric Theory, 2018, vol. 34, issue 1, 166-185

Abstract: Proxies for unobserved skills and technologies are increasingly available in empirical data. For dynamic discrete choice models of forward-looking agents where a continuous state variable is unobserved but its proxy is available, we derive closed-form identification of the structure by explicitly solving integral equations. In the first step, we derive closed-form identification of Markov components, including the conditional choice probabilities and the law of state transition. In the second step, we plug in these first-step identifying formulas to obtain primitive structural parameters of dynamically optimizing agents.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:cup:etheor:v:34:y:2018:i:01:p:166-185_00

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