Abstract

Behavioral choice models generate inequalities which, when combined with additional assumptions, can be used as a basis for estimation. This paper considers two sets of such assumptions and uses them in two empirical examples. The second example examines the structure of payments resulting from the upstream interactions in a vertical market. I then mimic the empirical setting for this example in a numerical analysis which computes actual equilibria, examines how their characteristics vary with the market setting, and compares them to the empirical results. The final section uses the numerical results in a Monte Carlo analysis of the robustness of the two approaches to estimation to their underlying assumptions.

Highlights

  • The original three variables maintain their signs and remain significant but have noticeably different magnitudes; that is, being contracted to both hospitals. This requires solving for equilibrium premiums and profits for HMO1 given each possible choice it can make and the fact that HMO2 is contracted to both hospitals

  • This motivates an enumeration of assumptions that justify alternative estimators in both multiple and single agent settings

  • An empirical example illustrates how the multiple agent estimator can be used to analyze a problem which is central to the determinants of prices and investment incentives in vertical markets; the correlates of the profit split between buyers and sellers in those markets

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Summary

Introduction

The copyright to this Article is held by the Econometric Society. I begin with a single agent discrete choice problem: a consumer’s decision of which supermarket to shop at This provides a transparent setting to illustrate the assumptions underlying alternative estimators and motivates the more formal discussion in the rest of the paper. Its importance stems from the need to analyze similar problems to understand the implications of alternative local policies (zoning laws, public transportation alternatives, and the like)

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