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IDENTIFICATION IN DISCRETE MARKOV DECISION MODELS

Published online by Cambridge University Press:  23 September 2014

Sorawoot Srisuma
Sorawoot Srisuma*
Affiliation:
University of Surrey
*
*Address correspondence to School of Economics, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom; e-mail: s.srisuma@surrey.ac.uk.
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Abstract

We derive conditions for the identification of the structural parameters in Markov decision model under the assumptions of Rust (1987, Econometrica 55, 999–1033) when the payoff function is parametrically specified. Identification in this class of dynamic problems is difficult to establish since the parameters of interest enter the value function nonlinearly, and the value function is only defined implicitly as a fixed point of some functional equation. We show it is sufficient to verify identification in the pseudomodel, which is more tractable as it is originally designed to reduce the computational burden in the estimation problem, for the identification of the data generating parameter of the underling model. Our results extend naturally to a class of dynamic discrete action games commonly used in empirical industrial organizations.

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ARTICLES
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Econometric Theory , Volume 31 , Issue 3 , June 2015 , pp. 521 - 538
Copyright
Copyright © Cambridge University Press 2014 

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Footnotes

I thank the editor, a co-editor, and anonymous referees for valuable suggestions that have greatly improved the paper. I also thank Xiaohong Chen, Oliver Linton, and Hashem Pesaran for helpful comments.

References

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