Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2024-12-27T17:51:18.459Z Has data issue: false hasContentIssue false
  • English
  • Français

Approximate Solutions to Stochastic Dynamic Programs

Published online by Cambridge University Press:  11 February 2009

Steven Stern
Steven Stern
Affiliation:
University of Virginia
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the properties of various approximation methods for solving stochastic dynamic programs in structural estimation problems. The problem addressed is evaluating the expected value of the maximum of available choices. The paper shows that approximating this by the maximum of expected values frequently has poor properties. It also shows that choosing a convenient distributional assumptions for the errors and then solving exactly conditional on the distributional assumption leads to small approximation errors even if the distribution is misspecified.

Type
Articles
Information
Econometric Theory , Volume 13 , Issue 3 , June 1997 , pp. 392 - 405
Copyright
Copyright © Cambridge University Press 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCE

Ahn, H. & Manski, C. (1993) Distribution theory for the analysis of binary choice under uncertainty with nonparametric estimation of expectations. Journal of Econometrics 56, 291–321.CrossRefGoogle Scholar
Ausink, J. & Wise, D. (1993) The Military Pension, Compensation, and Retirement of U.S. Air Force Pilots. Working paper 4593, National Bureau of.Economic Research, Cambridge.CrossRefGoogle Scholar
Berkovec, J. & Stern, S. (1991) Job exit behavior of older men. Econometrica 59, 189–210.CrossRefGoogle Scholar
Christensen, B. (1990) Estimation of Dynamic Programming Models. Ph.D. Dissertation, Cornell University, Ithaca, New York.Google Scholar
Eckstein, Z. & Wolpin, K. (1989) The specification and estimation of dynamic stochastic discrete choice models. Journal of Human Resources 24, 562–598.CrossRefGoogle Scholar
Engen, E. (1992) Precautionary Saving, Consumption, and Taxation in a Life Cycle Model with Stochastic Earnings and Mortality Risk. Ph.D. Dissertation, University of Virginia, Charlottesville.Google Scholar
Geweke, J. (1988) Antithetic acceleration of Monte Carlo integration in Bayesian inference. Journal of Econometrics 38, 73–89.CrossRefGoogle Scholar
Heckman, J. (1979) Selection bias as a specification error. Econometrica 47, 153–161.CrossRefGoogle Scholar
Hotz, V.J., Miller, R., Sanders, S., & Smith, J. (1994) A simulation estimator for models of dynamic discrete choice. Review of Economic Studies 61, 265–290.CrossRefGoogle Scholar
Hubbard, G., Skinner, J., & Zeldes, S. (1993) Precautionary Saving and Social Insurance. Working paper, National Bureau of Economic Research, Cambridge.CrossRefGoogle Scholar
Johnson, N. & Kotz, S. (1970) Continuous Univariate Distributions. Boston: Houghton Mifflin.Google Scholar
Lumsdainc, R., Stock, J., & Wise, D. (1991) Three models of retirement: Computational complexity versus predictive validity. In Wise, D. (ed.), Topics in the Economics of Aging, pp. 19–60. Chicago: University of Chicago Press.Google Scholar
Manski, C. (1988) Path utility analysis of dynamic choice. Manuscript, University of Wisconsin, Madison.Google Scholar
Manski, C. (1991) Nonparametric estimation of expectations in the analysis of discrete choice under uncertainty. In Bamett, W., Powell, J., & Tauchen, G. (eds.), Nonparametric and Semiparametric Methods in Econometrics and Statistics, pp. 259–276. Cambridge: Cambridge University Press.Google Scholar
McFadden, D. (1981) Econometric models of probabilistic choice. In Manski, C. & McFadden, D. (eds.) Structural Analysis of Discrete Data with Econometric Applications, pp. 198–272. Cambridge, Massachusetts: MIT Press.Google Scholar
Miller, R. (1984) Job matching and occupational choice. Journal of Political Economy 92, 1086–1120.CrossRefGoogle Scholar
Pakes, A. (1987) Patents as options: Some estimates of the value of holding European patent stocks. Econometrica 54, 755–784.CrossRefGoogle Scholar
Palumbo, M. (1991) Health Uncertainty and Optimal Consumption Near the End of the Life Cycle. Ph.D. Dissertation, University of Virginia, Charlottesville.Google Scholar
Rust, J. (1989) A dynamic programming model of retirement behavior. In Wise, D. (ed.), The Economics of Aging, pp. 359–398. Cambridge: National Bureau of Economic Research.Google Scholar
Stern, S. (1994) Approximate solutions to stochastic dynamic programs. Manuscript, University of Virginia, Charlottesville.Google Scholar
Stock, J. & Wise, D. (1990) Pensions, the option value of work, and retirement. Econometrica 58, 1151–1180.CrossRefGoogle Scholar
Wolpin, K. (1984) An estimable dynamic stochastic model of fertility and child mortality. Journal of Political Economy 92, 852–874.CrossRefGoogle Scholar
Wolpin, K. (1987) Estimating a structural search model: The transition from school to work. Econometrica 55, 801–817.CrossRefGoogle Scholar