NATIONAL BUREAU OF ECONOMIC RESEARCH
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Identification of Counterfactuals in Dynamic Discrete Choice Models

Myrto Kalouptsidi, Paul T. Scott, Eduardo Souza-Rodrigues

NBER Working Paper No. 21527
Issued in September 2015, Revised in November 2017
NBER Program(s):Environment and Energy Economics, Health Economics, Industrial Organization, Labor Studies

Dynamic discrete choice models (DDC) are not identified nonparametrically. However, the non-identification of DDC models does not necessarily imply non-identification of counterfactuals of interest. Using a novel approach that can accommodate both nonparametric and restricted payoff functions, we provide necessary and sufficient conditions for the identification of counterfactual behavior and welfare for a broad class of counterfactuals. The conditions are simple to check and can be applied to virtually all counterfactuals in the DDC literature. To explore the robustness of counterfactual results to model restrictions in practice, we consider a numerical example of a monopolist's entry problem, as well as an empirical model of agricultural land use. In each case, we provide examples of both identified and non-identified counterfactuals of interest.

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Document Object Identifier (DOI): 10.3386/w21527

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