Euler Equations for the Estimation of Dynamic Discrete Choice Structural Models

Victor Aguirregabiria () and Arvind Magesan

A chapter in Structural Econometric Models, 2013, vol. 31, pp 3-44 from Emerald Group Publishing Limited

Abstract: We derive marginal conditions of optimality (i.e., Euler equations) for a general class ofDynamic Discrete Choice(DDC) structural models. These conditions can be used to estimate structural parameters in these models without having to solve for approximate value functions. This result extends to discrete choice models theGMM-Euler equationapproach proposed byHansen and Singleton (1982)for the estimation of dynamic continuous decision models. We first show that DDC models can be represented as models of continuous choice where the decision variable is a vector of choice probabilities. We then prove that the marginal conditions of optimality and the envelope conditions required to construct Euler equations are also satisfied inDDCmodels. The GMM estimation of these Euler equations avoids the curse of dimensionality associated to the computation of value functions and the explicit integration over the space of state variables. We present an empirical application and compare estimates using the GMM-Euler equations method with those from maximum likelihood and two-step methods.

Keywords: Dynamic discrete choice structural models; Euler equations; choice probabilities; C35; C51; C61 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... 9053(2013)0000032001
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)

Related works:
Working Paper: Euler Equations for the Estimation of Dynamic Discrete Choice Structural Models (2013)
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:eme:aecozz:s0731-9053(2013)0000032001

DOI: 10.1108/S0731-9053(2013)0000032001

Access Statistics for this chapter

More chapters in Advances in Econometrics from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().