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Spatial dynamic models with intertemporal optimization: Specification and estimation

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  • Jeong, Hanbat
  • Lee, Lung-fei

Abstract

In this paper, we introduce a dynamic spatial interaction econometric model. There are n forward-looking agents of whom each has a parametric linear-quadratic payoff, and they interact with their neighbors through a spatial network. Considering a Markov perfect equilibrium (MPE), we derive a unique Nash equilibrium equation and construct a new spatial dynamic panel data (SDPD) model. For estimation, we suggest mainly the quasi-maximum likelihood (QML) method. Asymptotic properties of the QML estimator are investigated. In a Monte Carlo study, we estimate the model’s parameters and compare the results with those from traditional SDPD models. The model is applied to an empirical study on counties’ public safety spending in North Carolina.

Suggested Citation

  • Jeong, Hanbat & Lee, Lung-fei, 2020. "Spatial dynamic models with intertemporal optimization: Specification and estimation," Journal of Econometrics, Elsevier, vol. 218(1), pages 82-104.
    • Handle: RePEc:eee:econom:v:218:y:2020:i:1:p:82-104
    DOI: 10.1016/j.jeconom.2019.10.012
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    3. Jeong, Hanbat & Lee, Lung-fei, 2021. "Spatial dynamic game models for coevolution of intertemporal economic decision-making and spatial networks," Journal of Economic Dynamics and Control, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    Dynamic interaction; Intertemporal optimization; Markov perfect equilibrium; SDPD models; QML estimation; County’s public safety spending;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions

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