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Prior Information And Heuristic Ridge Regression For Production Function Estimation

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  • Burt, Oscar R.
  • Frank, Michael D.
  • Beattie, Bruce R.

Abstract

A heuristic criterion for choosing an acceptable level of bias in ridge regression is presented. The criterion is based on a noncentral F-test of the stochastic restrictions implicit in the ridge estimator. An appropriate significance level for the test is based on conjunctive use of strong and weak mean square error criteria. The procedure is illustrated in estimating a Cobb-Douglas production function for the Central Valley of California using factor shares as priors rather than the null vector. Preliminary results suggest that a conjunctive SMSE/WMSE criterion with more "reasonable" priors selects an estimator with smaller bias than ridge trace.

Suggested Citation

  • Burt, Oscar R. & Frank, Michael D. & Beattie, Bruce R., 1987. "Prior Information And Heuristic Ridge Regression For Production Function Estimation," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(2), pages 1-9, December.
    • Handle: RePEc:ags:wjagec:32237
    DOI: 10.22004/ag.econ.32237
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    References listed on IDEAS

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    1. Goodnight, James & Wallace, T D, 1972. "Operational Techniques and Tables for Making Weak MSE Tests for Restrictions in Regressions," Econometrica, Econometric Society, vol. 40(4), pages 699-709, July.
    2. V. Kerry Smith, 1975. "Improving Estimates of Economic Parameters by Use of Ridge Regression with Production Function Applications: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(4), pages 723-724.
    3. Fred H. Tyner & Luther G. Tweeten, 1965. "A Methodology for Estimating Production Parameters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 47(5), pages 1462-1467.
    4. William G. Brown & Bruce R. Beattie, 1975. "Improving Estimates of Economic Parameters by Use of Ridge Regression with Production Function Applications," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 57(1), pages 21-32.
    5. Judge, G.G. & Bock, M.E., 1983. "Biased estimation," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 10, pages 599-649, Elsevier.
    6. Wallace, T D, 1972. "Weaker Criteria and Tests for Linear Restrictions in Regression," Econometrica, Econometric Society, vol. 40(4), pages 689-698, July.
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    Cited by:

    1. Coggins, Jay S. & Hammond, Jerome W., 1988. "Component Pricing Of Producer Milk: A Yield-Based Model For The Cheese Industry," Staff Papers 14254, University of Minnesota, Department of Applied Economics.

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