Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior

45 Pages Posted: 30 Mar 2007 Last revised: 30 Oct 2016

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Date Written: April 1, 2010

Abstract

This paper deals with the estimation of the behavioral and welfare effects of counterfactual policy interventions in dynamic structural models where all the primitive functions are nonparametrically specified (i.e., preferences, technology, transition rules, and distribution of unobserved variables). It proves the nonparametric identification of agents' decision rules, before and after the policy intervention, and of the change in agents' welfare. Based on these results we propose a nonparametric procedure to estimate the behavioral and welfare effects of a general class of counterfactual policy interventions. The nonparametric estimator can be used to construct a test of the validity of a particular parametric specification. We apply this method to evaluate hypothetical reforms in the rules of a public pension system using a model of retirement behavior and a sample of workers in Sweden.

Keywords: Dynamic discrete decision processes, Nonparametric identification, Counterfactual policy interventions, Retirement behavior

JEL Classification: C14, C25, C61, D91, J26

Suggested Citation

Aguirregabiria, Victor, Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior (April 1, 2010). Journal of Business and Economic Statistics, 28(2) (April 2010), 201-218., Available at SSRN: https://ssrn.com/abstract=976686 or http://dx.doi.org/10.2139/ssrn.976686

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

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4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

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