Goodness-of-Fit: An Economic Approach

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

No 444, Economics Series Working Papers from University of Oxford, Department of Economics

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.

Keywords: Goodness of fit; Discrepancy; Income distribution; Inequality measurement (search for similar items in EconPapers)
JEL-codes: C10 D63 (search for similar items in EconPapers)
Date: 2009-08-01
New Economics Papers: this item is included in nep-ecm and nep-ltv
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Goodness-of-Fit: An Economic Approach (2009)
Working Paper: Goodness-of-fit: an economic approach (2009)
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