A note on Shannon’s entropy as an index of product variety

Sebastiaan (Bas) Straathof ()

No 31, Research Memorandum from Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT)

Abstract: This note shows that the antilog of Shannon’s entropy is a suitableindex of product variety for three reasons. First, for symmetricproduct types it is equal to the number of product types. Second, disaggregationof the underlying product set always leads to an increasein measured product variety. Third, the introduction or disappearanceof a marginal type does not cause a discrete change in the variety index.These properties hold for a class of weights that includes, but isnot limited to, frequencies.

Keywords: mathematical economics and econometrics (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (1)

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