Goodness-of-fit: an economic approach

Frank Cowell (), Emmanuel Flachaire and Sanghamitra Bandyopadhyay ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: C10 D63 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://eprints.lse.ac.uk/25433/ Open access version. (application/pdf)

Related works:
Working Paper: Goodness-of-Fit: An Economic Approach (2009)
Working Paper: Goodness-of-Fit: An Economic Approach (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:25433

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