This paper provides an algorithm for computing Markov Perfect Nash Equilibria (Maskin and Tirole, 1988a and b) for dynamic models that allow for heterogeneity among firms and idiosyncratic (or firm specific) sources of uncertainty. It has two purposes. To illustrate the ability of such models to reproduce important aspects of reality, and to provide a tool which can be used for both descriptive and policy analysis in a framework rich enough to capture many of the features of firm level data sets (thereby enabling it to be integrated with the empirical detail in those data sets). We illustrate by computing the policy functions, and simulating the industry structures, generated by a class of dynamic differentiated product models in which the idiosyncratic uncertainty is due to the random outcomes of each firm's research process (we also allow for an autonomous aggregate demand process). The illustration focuses on comparing the effects of different regulatory and institutional arrangements on market structure and on welfare for one particular set of parameter values. The simulation results are of independent interest and can be read without delving into the technical detail of the computational algorithm The last part of the paper begins with an explicit consideration of the computational burden of the algorithm, and then introduces approximation techniques designed to make computation easier. This section provides some analytic results which dramatically reduce the computational burden of computing equilibria for industries in which a large number of firms are typically active.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number
0119.
Length: Date of creation: Jan 1992 Date of revision: Handle: RePEc:nbr:nberte:0119
Note: PR Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.