Notes on Structural Models (to Be Continued)

Structural VS. Reduced Form in Empirical Economics

Empirical economics focus on data-driven problems

Historical Background

Structural Model

Structural models estimate features of a data generating process that are (assumed to be) invariant to the counterfactuals of interest, e.g., g(Y,X,Z,U;Θ)=0g(Y, X, Z, U; \Theta) = 0

Reduced-Form

A reduced form is a functional or stochastic mapping for which the inputs are (i) exogenous variables and (ii) unobservables (“structural errors”), and for which the outputs are endogenous variables, e.g., Y=f(X,Z,U)Y = f (X, Z, U)

Classic Models

1. Homogeneous Logit Model

Example:

2. Random Coefficients Logit Model (BLP Model; Notes)

Example:

3. Dynamic Discrete Choice Model

3.1. Single-Agent Dynamic Model

Rust’s (1987) Bus Engine Replacement Problem

3.2. Dynamic Game Model

4. Match Models

4. 1. One to One Matching

4.2. Many to One Matching

Common Methods of Estimation

References