Testing for the Monotone Likelihood Ratio Assumption
AbstractMonotonicity of the likelihood ratio for conditioned densities is a common technical assumption in economic models. But we have found no empirical tests for its plausibility. This paper develops such a test based on the theory of order-restricted inference, which is robust with respect to the correlation structure of the distributions being compared. We apply the test to study the technology revealed by agricultural production experiments. For the data under scrutiny, the results support the assumption of the monotone likelihood ratio. In a second application, we find some support for the assumption of affiliation among bids cast in a multiple-round Vickrey auction for a consumption good. Keywords: affiliation, auction, likelihood ratio, order-restricted inference, stochastic order.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10193.
Date of creation: 13 Feb 2003
Date of revision:
Publication status: Published in Journal of Business & Economic Statistics, June 2004, vol. 22, pp. 358-366
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Other versions of this item:
- Roosen J. & Hennessy D.A., 2004. "Testing for the Monotone Likelihood Ratio Assumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 358-366, July.
- Jutta Roosen & David A. Hennessy, 2003. "Testing for the Monotone Likelihood Ratio Assumption," Center for Agricultural and Rural Development (CARD) Publications 03-wp325, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
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