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Evaluating Theories of the Income Dynamics: A Probabilistic Approach

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Author Info
Aebi, Robert (Institute for Mathematical Statistic, University of Berne)
Neusser, Klaus (Department of Economics, University of Berne)
Steiner, Peter (Department of Economics, University of Berne)

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Abstract

The paper proposes an approach to evaluate hypotheses about transition dynamics when only the distributions at two points in time are observed. Using the principle of statistical mechanics, we show how to adjust in the "most probable" way a hypothesis so that it becomes compatible with the observed distributions. This adjustment procedure also allows to test hypotheses in a statistical sense. The test is based on the relative entropy and is equivalent to a likelihood ratio test. We apply our approach to compare the dynamics of the income distribution between men and women in the U.S. using PSID data.

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File URL: http://www.ihs.ac.at/publications/eco/es-61.pdf
File Format: application/pdf
File Function: First version, 1999
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 61.

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Length: 20 pages
Date of creation: Feb 1999
Date of revision:
Handle: RePEc:ihs:ihsesp:61

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Related research
Keywords: Transition matrices; Large deviation; Relative entropy; Income dynamics;

Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General

References listed on IDEAS
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  1. repec:att:wimass:1919983 is not listed on IDEAS
  2. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers 98-01-012, Santa Fe Institute.
    Other versions:
  3. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March. [Downloadable!] (restricted)
    Other versions:
  4. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence," Papers 645, Yale - Economic Growth Center.
    Other versions:
  5. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September. [Downloadable!] (restricted)
  6. Valentino Dardanoni, 1994. "Income Distribution Dynamics: Monotone Markov Chains Make Light Work," University of California at San Diego, Economics Working Paper Series 94-16, Department of Economics, UC San Diego. [Downloadable!]
  7. S Durlauf & Danny Quah, 1998. "The New Empirics of Economic Growth," CEP Discussion Papers dp0384, Centre for Economic Performance, LSE.
  8. Schluter, Christian, 1998. "Statistical inference with mobility indices," Economics Letters, Elsevier, vol. 59(2), pages 157-162, May. [Downloadable!] (restricted)
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