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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 444.
Date of creation: 01 Aug 2009
Date of revision:
Goodness of fit; Discrepancy; Income distribution; Inequality measurement;
Other versions of this item:
- Frank Cowell & Emmanuel Flachaire & Sanghamitra Bandyopadhyay, 2009. "Goodness-of-fit: an economic approach," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 25433, London School of Economics and Political Science, LSE Library.
- Sanghamitra Bandyopadhyay & Frank A Cowell & Emmanuel Flachaire, 2009. "Goodness-of-Fit: An Economic Approach," STICERD - Distributional Analysis Research Programme Papers, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 101, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-22 (All new papers)
- NEP-ECM-2009-08-22 (Econometrics)
- NEP-LTV-2009-08-22 (Unemployment, Inequality & Poverty)
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