Goodness-of-Fit: An Economic Approach
AbstractSpecific functional forms are often used in economic models of distributions; goodness-of-fit measures are used to assess whether a functional form is appropriate in the light of real-world data. Standard approaches use a distance criterion based on the EDF, an aggregation of differences in observed and theoretical cumulative frequencies. However, an economic approach to the problem should involve a measure of the information loss from using a badly-fitting model. This would involve an aggregation of, for example, individual income discrepancies between model and data. We provide an axiomatisation of an approach and applications to illustrate its importance.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 101.
Date of creation: Apr 2009
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goodness of fit; discrepancy; income distribution; inequalitymeasurement;
Other versions of this item:
- Sanghamitra Bandyopadhyay & Frank A. Cowell, 2009. "Goodness-of-Fit: An Economic Approach," Economics Series Working Papers 444, University of Oxford, Department of Economics.
- Frank Cowell & Emmanuel Flachaire & Sanghamitra Bandyopadhyay, 2009. "Goodness-of-fit: an economic approach," LSE Research Online Documents on Economics 25433, London School of Economics and Political Science, LSE Library.
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
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