Identifying Dynamic Games with Serially Correlated Unobservables
Abstract
In this article, we consider the nonparametric identification of Markov dynamic games models in which each firm has its own unobserved state variable, which is persistent over time. This class of models includes most models in the Ericson and Pakes (1995) and Pakes and McGuire (1994) framework. We provide conditions under which the joint Markov equilibrium process of the firms’ observed and unobserved variables can be nonparametrically identified from data. For stationary continuous action games, we show that only three observations of the observed component are required to identify the equilibrium Markov process of the dynamic game. When agents’ choice variables are discrete, but the unobserved state variables are continuous, four observations are required.
Keywords
Citation
Hu, Y. and Shum, M. (2013), "Identifying Dynamic Games with Serially Correlated Unobservables", Structural Econometric Models (Advances in Econometrics, Vol. 31), Emerald Group Publishing Limited, Leeds, pp. 97-113. https://doi.org/10.1108/S0731-9053(2013)0000032003
Publisher
:Emerald Group Publishing Limited
Copyright © 2013 by Emerald Group Publishing Limited