Goodness-of-Fit: An Economic Approach
Specific 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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- Cameron, A Colin & Windmeijer, Frank A G, 1996.
"R-Squared Measures for Count Data Regression Models with Applications to Health-Care Utilization,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 14(2), pages 209-20, April.
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