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Goodness-of-fit: an economic approach

Cowell, Frank and Flachaire, Emmanuel and Bandyopadhyay, Sanghamitra (2009) Goodness-of-fit: an economic approach. Distributional Analysis Research Programme Papers, DARP 101. The Toyota Centre, London School of Economics and Political Science, London, UK.

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Identification Number: DARP 101

Abstract

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.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk/_new/publications/series....
Additional Information: © 2009 the authors
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Date Deposited: 07 Oct 2009 16:31
Last Modified: 04 May 2011 10:40
URI: http://eprints.lse.ac.uk/id/eprint/25433

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