A linearisation of the maximum entropy formalism using separable programming

Ermanno Affuso and Steven B Caudill

International Journal of Operational Research, 2015, vol. 22, issue 4, 385-404

Abstract: The maximum entropy principle is a standard tool for the calibration of non-linear programming models which are frequently used for policy analysis. The information entropy function is concave and separable. In this paper, we derive a linear approximation of the entropy using separable programming. As we demonstrate, our linear entropy formulation is useful for the calibration of separable non-linear models of very large scale. To demonstrate, we solve both an ill-posed and a well-posed inverse problem and we analyse the sensitivity of the results on the number of breakpoints of the piecewise linear approximation.

Keywords: maximum entropy; entropy econometrics; separable programming; concave programming; linear approximation; linearisation; model calibration; nonlinear programming; nonlinear models; policy analysis; modelling. (search for similar items in EconPapers)
Date: 2015
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