Estimation of dynamic structural models, problems and prospects: discrete decision processes

Abstract

This is the first in a two-part survey of recent developments in the rapidly growing literature on methods for solving and estimating dynamic structural models. Part I focusses on discrete decision processes (DDP), i.e., problems where the decision variable is restricted to a countable set. Most of this part deals with single-agent problems, though I do conclude by sketching a framework for inference of discrete dynamic games. Part II, by Ariel Pakes, considers extensions to mixed continuous discrete decision processes (MCDP), i.e., processes where some of the components of the decision variable can take on a continuum of values. Part II provides more extensive coverage of recent developments in estimation of dynamic multiagent models. We have tried to make the parts relatively self contained, so that readers can feel free to skip to the sections that interest them. Both parts of the survey are restricted to problems formulated in discrete time, and, as a result, the words 'discrete' and 'continuous' will refer to the control rather than the time variable.