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Exit dynamics of start-up firms: Structural estimation using indirect inference

Rolf Golombek () and Arvid Raknerud

Journal of Econometrics, 2018, vol. 205, issue 1, 204-225

Abstract: We estimate by means of indirect inference a structural economic model where firms’ exit and investment decisions are the solution to a discrete–continuous stochastic dynamic programming problem. Our method solves the main difficulty of simulation-based inference in structural discrete–continuous choice models, namely that the simulated trajectories are discontinuous functions of the structural parameters. Estimating the model on all start-up firms in the Norwegian manufacturing sector, we find that if the expected value of continuing production is persistently low relative to the expected value of exit, the firm has a high probability to exit.

Keywords: Indirect inference; Auxiliary model; Discrete-continuous choice; Markovian decision model; Investment; Cost of capital adjustment; Firm exit (search for similar items in EconPapers)
JEL-codes: C33 C51 C61 C72 D21 (search for similar items in EconPapers)
Date: 2018
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:205:y:2018:i:1:p:204-225