The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Econometric Issues in the Presence of Multiple Equilibria

  • Francesca Molinari
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2903

Abstract

Multiplicity of equilibria implies that the relationship between the outcome variable and the exogenous variables characterising a model is a correspondence rather than a function. This results in an incomplete econometric model. Incompleteness complicates identification and statistical inference on functionals of the probability distribution of the population of interest. This is because it implies that the sampling process and the maintained assumptions may be consistent with a set of values for these functionals, rather than with a single one. As a result, the econometric analysis of models with multiple equilibria needs to either: (1) rely on simplifying assumptions that shift focus to outcome features that are common across equilibria; or (2) augment the model with a “selection mechanism” that chooses the equilibrium played in the regions of multiplicity; or (3) maintain only minimal assumptions that partially identify the functionals of interest. Each of these approaches is reviewed, focusing on static game theoretic models.

Keywords

Aumann expectation Multiple equilibria Normal form games Partial identification Point identification Qualitative choice models Random sets 

JEL Classifications

C01 C14 C15 C35 
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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Francesca Molinari
    • 1
  1. 1.