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Was Harold Zurcher myopic after all? Replicating Rust's engine replacement estimates

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  • Christopher Ferrall

Abstract

Rust (1987) studies the dynamic decision making under uncertainty made by Harold Zurcher to replace bus engines. In the decades since, the model has been applied, extended, and used as an example multiple times. This paper resolves some discrepancies in how data were transformed in the original and subsequent archives. Using a package that standardizes computation of estimated dynamic programming, it replicates the 12 original maximum likelihood estimates and the six main hypothesis tests of whether Zurcher's decisions were myopic or not. The discrepancy in the data processing results in modest differences in estimates and log‐likelihoods, but the p‐values are essentially the same because the differences are very similar across values of the discount factor in the tests.

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  • Christopher Ferrall, 2023. "Was Harold Zurcher myopic after all? Replicating Rust's engine replacement estimates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(7), pages 1093-1100, November.
    • Handle: RePEc:wly:japmet:v:38:y:2023:i:7:p:1093-1100
    DOI: 10.1002/jae.3001
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    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
    3. Che‐Lin Su & Kenneth L. Judd, 2012. "Constrained Optimization Approaches to Estimation of Structural Models," Econometrica, Econometric Society, vol. 80(5), pages 2213-2230, September.
    4. Christopher Ferrall, 2020. "Object Oriented (Dynamic) Programming: Replication, Innovation and "Structural" Estimation," Working Paper 1432, Economics Department, Queen's University.
    5. Larsen, Bradley J. & Oswald, Florian & Reich, Gregor & Wunderli, Dan, 2012. "A test of the extreme value type I assumption in the bus engine replacement model," Economics Letters, Elsevier, vol. 116(2), pages 213-216.
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