Artikel
The endogenous grid method for discrete-continuous dynamic choice models with (or without) taste shocks
We present a fast and accurate computational method for solving and estimating a class of dynamic programming models with discrete and continuous choice variables. The solution method we develop for structural estimation extends the en- dogenous grid-point method (EGM) to discrete-continuous (DC) problems. Discrete choices can lead to kinks in the value functions and discontinuities in the optimal policy rules, greatly complicating the solution of the model. We show how these problems are ameliorated in the presence of additive choice-specific independent and identically distributed extreme value taste shocks that are typically interpreted as 'unobserved state variables' in structural econometric applications, or serve as 'random noise' to smooth out kinks in the value functions in numerical applications. We present Monte Carlo experiments that demonstrate the reliability and efficiency of the DC-EGM algorithm and the associated maximum likelihood estimator for structural estimation of a life-cycle model of con- sumption with discrete retirement decisions.
- Sprache
-
Englisch
- Erschienen in
-
Journal: Quantitative Economics ; ISSN: 1759-7331 ; Volume: 8 ; Year: 2017 ; Issue: 2 ; Pages: 317-365 ; New Haven, CT: The Econometric Society
- Klassifikation
-
Wirtschaft
Estimation: General
Computational Techniques; Simulation Modeling
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
- Thema
-
Life-cycle model
discrete and continuous choice
Bellman equation
Euler equation
retirement choice
endogenous grid-point method
nested fixed point algorithm
extreme value taste shocks
smoothed max function
structural estimation
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Iskhakov, Fedor
Jørgensen, Thomas Høgholm
Rust, John
Schjerning, Bertel
- Ereignis
-
Veröffentlichung
- (wer)
-
The Econometric Society
- (wo)
-
New Haven, CT
- (wann)
-
2017
- DOI
-
doi:10.3982/QE643
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
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Objekttyp
- Artikel
Beteiligte
- Iskhakov, Fedor
- Jørgensen, Thomas Høgholm
- Rust, John
- Schjerning, Bertel
- The Econometric Society
Entstanden
- 2017
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