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Testing Models with Multiple Equilibria by Quantile Methods

Echenique, Federico and Komunjer, Ivana (2005) Testing Models with Multiple Equilibria by Quantile Methods. Social Science Working Paper, 1244. California Institute of Technology , Pasadena, CA. (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20170802-110804051

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Abstract

We derive an econometric test for the presence of monotone comparative statics in models with multiple equilibria. The test applies to many economic models, such as single-person decision, industrial organization, macroeconomic and game-theory models. These models have complementarities between exogenous and endogenous variables. We show that, as a result, extreme (large and small) conditional quantiles of the endogenous variable are increasing in the exogenous variable. We develop a likelihood-ratio test based on estimates for the conditional quantiles of the endogenous variable, which is an asymptotic extension of Bartholomew's (1959a,b) "chi-bar squared" test. Our assumptions are weak; we remain agnostic about the cardinality, location and probabilities of the equilibrium set, and make no restrictions on the equilibrium-selection procedure.


Item Type:Report or Paper (Working Paper)
Additional Information:Original version: Dec. 2005. Revised Oct. 2007. Earlier versions of this paper have been presented at Northwestern University, UC Berkeley, UC Davis, the North American ES summer meeting, the EEE2005 conference, and the 2005 ESSET workshop. Many thanks to Andres Aradillas-Lopez, Patrick Bajari, Peter Bossaerts, Chris Chambers, Xiaohong Chen, Valentino Dardanoni, Joel Horowitz, Matt Jackson, Michael Jansson, Chuck Manski, Andrea Mattozzi, Rosa Matzkin, Tom Palfrey, Jim Powell, Andrea Rotnitzky, Paul Ruud, Max Stinchcombe, Andrew Sweeting, Elie Tamer, Quang Vuong, Hal White, and Bill Zame for their suggestions and comments.
Group:Social Science Working Papers
Subject Keywords:Econometrics of Games, Monotone Comparative Statics, Quantile Regression
Classification Code:JEL: C1, C5
Record Number:CaltechAUTHORS:20170802-110804051
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20170802-110804051
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79760
Collection:CaltechAUTHORS
Deposited By: Hanna Storlie
Deposited On:02 Aug 2017 18:41
Last Modified:02 Aug 2017 18:41

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