Jay Lu, Yao Luo, Kota Saito, Yi Xin
arXiv 12 Jun 2024 · Econometrics
arXiv:2406.07809 · PDF · DOI · OpenAlex · Extracted main text
This paper proposes an empirical model of dynamic discrete choice to allow for non-separable time preferences, generalizing the well-known Rust (1987) model. Under weak conditions, we show the existence of value functions and hence well-defined optimal choices. We construct a contraction mapping of the value function and propose an estimation method similar to Rust's nested fixed point algorithm. Finally, we apply the framework to the bus engine replacement data. We improve the fit of the data with our general model and reject the null hypothesis that Harold Zuercher has separable time preferences. Misspecifying an agent's preference as time-separable when it is not leads to biased inferences about structure parameters (such as the agent's risk attitudes) and misleading policy recommendations.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Rust, J (1987) Optimal replacement of GMC bus engines: An empirical model of Harold Zurcher | 1.000 | 12 | 6 | 100% |
| 2 | Epstein, L. G. and S. E. Zin (1989) Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework | 0.874 | 5 | 2 | 100% |
| 3 | Gowrisankaran, G. and M. Rysman (2012) Dynamics of consumer demand for new durable goods | 0.644 | 2 | 2 | 100% |
| 4 | Kreps, D. M. and E. L. Porteus (1978) Temporal resolution of uncertainty and dynamic choice theory | 0.644 | 2 | 2 | 100% |
| 5 | Hotz, V. J. and R. A. Miller (1993) Conditional choice probabilities and the estimation of dynamic models | 0.585 | 3 | 1 | 100% |
| 6 | Arcidiacono, P. and R. A. Miller (2020) Identifying dynamic discrete choice models off short panels | 0.511 | 2 | 1 | 100% |
| 7 | Bansal, R. and A. Yaron (2004) Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles | 0.511 | 2 | 1 | 100% |
| 8 | Dorsey, J (2019) Waiting for the courts: Effects of policy uncertainty on pollution and investment | 0.511 | 2 | 1 | 100% |
| 9 | Handley, K. and J. F. Li (2020) Measuring the effects of firm uncertainty on economic activity: New evidence from one million documents, Tech | 0.511 | 2 | 1 | 100% |
| 10 | Kellogg, R (2014) The effect of uncertainty on investment: evidence from Texas oil drilling | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 40 scored citations.