Nonparametric likelihood ratio model selection tests between parametric likelihood and moment condition models

We propose a nonparametric likelihood ratio testing procedure for choosing between a parametric (likelihood) model and a moment condition model when both models could be misspecified. Our procedure is based on comparing the Kullback–Leibler Information Criterion (KLIC) between the parametric model and moment condition model. We construct the KLIC for the parametric model using the difference between the parametric log likelihood and a sieve nonparametric estimate of population entropy, and obtain the KLIC for the moment model using the empirical likelihood statistic. We also consider multiple (>2) model comparison tests, when all the competing models could be misspecified, and some models are parametric while others are moment-based. We evaluate the performance of our tests in a Monte Carlo study, and apply the tests to an example from industrial organization