Econometric modeling of interdependent discrete choice with applications to market structure

Arbeitspapier

This paper demonstrates the use of bounds analysis for empirical models of market structure that allow for multiple equilibria. From an econometric standpoint, these models feature systems of equalities and inequalities for the determination of multiple endogenous interdependent discrete choice variables. These models may be incomplete, delivering multiple values of outcomes at certain values of the latent variables and covariates, and incoherent, delivering no values. Alternative approaches to accommodating incompleteness and incoherence are considered in a unifying framework afforded by the Generalized Instrumental Variable models introduced in Chesher and Rosen (2017). Sharp identication regions for parameters of interest defined by systems of conditional moment equalities and inequalities are provided. Almost all empirical analysis of interdependent discrete choice uses models that include parametric specifications of the distribution of unobserved variables. The paper provides characterizations of identified sets and outer regions for structural functions and parameters allowing for any distribution of unobservables independent of exogenous variables. The methods are applied to the models and data of Mazzeo (2002) and Kline and Tamer (2016) in order to study the sensitivity of empirical results to restrictions on equilibrium selection and the distribution of unobservable payoff shifters, respectively. Confidence intervals for individual parameter components are provided using a recently developed inference approach from Belloni, Bugni, and Chernozhukov (2018). The relaxation of equilibrium selection and distributional restrictions in these applications is found to greatly increase the width of resulting confidence intervals, but nonetheless the models continue to sign strategic interaction parameters.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cemmap working paper ; No. CWP25/20

Classification and Topics

• Classification: Wirtschaft ; Econometric and Statistical Methods and Methodology: General ; Semiparametric and Nonparametric Methods: General ; Econometric Modeling: General ; Model Construction and Estimation
• Subject: Discrete endogenous variables ; Discrete choice ; Endogeneity ; Incoherent models ; Incomplete models ; Instrumental variables ; Set IdentiÖcation ; Structural econometrics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chesher, Andrew ; Rosen, Adam M.
• Event: Veröffentlichung
• (who): Centre for Microdata Methods and Practice (cemmap)
• (where): London
• (when): 2020

Further information

• DOI: doi:10.1920/wp.cem.2020.2520
• Handle: http://hdl.handle.net/10419/241900
• Last update: 10.03.2025, 11:42 AM CET