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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) concludes that the data "clearly reject" the hypothesis that Harold Zurcher made bus replacement decisions using a monthly (and myopic) discount rate of 0 in favor of the factor 0.9999. The alternative model requires the nested fixed point algorithm developed in the paper which became the basis of an ongoing empirical literature. The p-value of the likelihood ratio test was 0.053. Recoding the preferred model and re-processing the raw data reveals two types of errors in the original analysis and a revised p-value of 0.078. This remains below .10, which can be inferred as the significance level that clear rejection was based on. Thus the myopic hypothesis is again rejected although for lower conventional significance levels it would not be.

Suggested Citation

  • Christopher Ferrall, 2021. "Was Harold Zurcher Myopic After All? Replicating Rust's Engine Replacement Estimates," Working Paper 1467, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1467
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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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