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econometric issues in the presence of multiple equilibria

Author

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  • Francesca Molinari
Abstract
Multiplicity of equilibria implies that the relationship between the outcome variable and the exogenous variables characterising a model is a correspondence rather than a function. This results in an incomplete econometric model. Incompleteness complicates identification and statistical inference on functionals of the probability distribution of the population of interest. This is because it implies that the sampling process and the maintained assumptions may be consistent with a set of values for these functionals, rather than with a single one. As a result, the econometric analysis of models with multiple equilibria needs to either: (1) rely on simplifying assumptions that shift focus to outcome features that are common across equilibria; or (2) augment the model with a “selection mechanism†that chooses the equilibrium played in the regions of multiplicity; or (3) maintain only minimal assumptions that partially identify the functionals of interest. Each of these approaches is reviewed, focusing on static game theoretic models.

Suggested Citation

  • Francesca Molinari, 2010. "econometric issues in the presence of multiple equilibria," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    • Handle: RePEc:pal:dofeco:v:4:year:2010:doi:3836
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    Citations

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    Cited by:

    1. Taisuke Otsu & Martin Pesendorfer & Yuya Sasaki & Yuya Takahashi, 2022. "Estimation Of (Static Or Dynamic) Games Under Equilibrium Multiplicity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1165-1188, August.

    More about this item

    Keywords

    Aumann expectation; multiple equilibria; normal form games; partial identification; point identification; qualitative choice models; random sets;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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