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A Modified Likelihood Approach for Models with Parameter-Dependent Support

Author

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  • Yao Luo

    (University of Toronto)

Abstract

In structural models with parameter-dependent support, maximum likeli-hood problems are nonregular. We reformulate these problems by parameter-dependent transformations and propose modified likelihood estimators that have regular asymptotic properties. We then describe several applications to search models, auction models and frontier production functions and demonstrate the performance of our method through Monte Carlo simulations. Lastly, we apply the method to a Vuong non-nested test of additive v.s. multiplicative separable auction-specific heterogeneity in Michigan Department of Transportation procurements.

Suggested Citation

  • Yao Luo, 2024. "A Modified Likelihood Approach for Models with Parameter-Dependent Support," Annals of Economics and Finance, Society for AEF, vol. 25(2), pages 675-703, November.
    • Handle: RePEc:cuf:journl:y:2024:v:25:i:2:luo
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    More about this item

    Keywords

    Boundary model; Job search; Auction; Frontier production function; Sutton's bound test; Vuong test;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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