Aguirregabiria, Victor and Magesan, Arvind (2013): Euler Equations for the Estimation of Dynamic Discrete Choice Structural.

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Abstract
We derive marginal conditions of optimality (i.e., Euler equations) for a general class of Dynamic Discrete Choice (DDC) structural models. These conditions can be used to estimate structural parameters in these models without having to solve for or approximate value functions. This result extends to discrete choice models the GMMEuler equation approach proposed by Hansen 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 in DDC models. 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 GMMEuler equations method with those from maximum likelihood and twostep methods.
Item Type:  MPRA Paper 

Original Title:  Euler Equations for the Estimation of Dynamic Discrete Choice Structural 
Language:  English 
Keywords:  Dynamic discrete choice structural models; Euler equations; Choice probabilities. 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C13  Estimation: General C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C35  Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C51  Model Construction and Estimation C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis 
Item ID:  46056 
Depositing User:  Victor Aguirregabiria 
Date Deposited:  10 Apr 2013 20:38 
Last Modified:  09 Oct 2019 16:38 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/46056 