Nonparametric Identification of Dynamic Games with Multiple Equilibria and Unobserved Heterogeneity

CAEPR Working Paper No. 002-2016

33 Pages Posted: 1 Apr 2016

See all articles by Ruli Xiao

Ruli Xiao

Indiana University; Indiana University

Date Written: March 7, 2016

Abstract

This paper provides sufficient conditions for non-parametrically identifying dynamic games with incomplete information, allowing for both multiple equilibria and unobserved heterogeneity. The identification proceeds in two steps. The first step mainly involves identifying the equilibrium conditional choice probabilities and the state transitions using results developed in the measurement error literature. The existing measurement error literature relies on monotonicity assumptions to determine the order of the latent types. This paper, in contrast, explores the identification structure to match the order, which is important for identifying the payoff primitives. The second step follows existing literature to identify the payoff parameters based on the equilibrium conditions with exclusion restrictions. Multiple equilibria and unobserved heterogeneity can be distinguished through comparison of payoff primitives.

Keywords: Multiple equilibria, Unobserved heterogeneity, Discrete games, Dynamic games, Non-parametric identification

JEL Classification: C14

Suggested Citation

Xiao, Ruli and Xiao, Ruli, Nonparametric Identification of Dynamic Games with Multiple Equilibria and Unobserved Heterogeneity (March 7, 2016). CAEPR Working Paper No. 002-2016, Available at SSRN: https://ssrn.com/abstract=2757272 or http://dx.doi.org/10.2139/ssrn.2757272

Ruli Xiao (Contact Author)

Indiana University ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Indiana University ( email )

100 S Woodlawn Ave
Bloomington, IN 47405
United States

HOME PAGE: http://https://sites.google.com/site/iueconomicsrulixiao/

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