Identification of a Simple Dynamic Discrete Game Under Rationalizability
Posted: 12 Aug 2008 Last revised: 30 Oct 2016
Date Written: July 1, 2008
This paper studies the identification of structural parameters in dynamic games when we replace the assumption of Markov Perfect Equilibrium (MPE) with weaker conditions such as rational behavior and rationalizability. The identification of players' time discount factors is of especial interest. I present identification results for a simple two-periods/two-players dynamic game of market entry-exit. Under the assumption of level-2 rationality (i.e., players are rational and they know that they are rational), a exclusion restriction and a large-support condition on one of the exogenous explanatory variables are sufficient for point-identification of all the structural parameters.
Keywords: Identification, Empirical dynamic discrete games, Rational behavior, Rationalizability
JEL Classification: C10, C14, C25
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