--%>

Testing Functional structure models

Testing Functional structure models: It is often hard to tell whether the functional model structure chosen (which almost always in published work appears to generate consistent and robust results) is the only one tested or not.

Leamer (1983) has argued that good method should require that authors report how many regressions they undertook (and the functional forms subsequently rejected) before they found the one they chose to report. Leamer is particularly concerned that authors often will do hundreds or thousands of regressions (involving an array of functional forms and manipulations of assumptions and data) before they find one that offers statistically significant results. He believes that presenting only the one that worked, instead of talking about the hundreds or thousands that didn’t work is incomplete reporting and can lead to spurious results or at least misapplied confidence in the results.

He illustrates using an example of fertilizer usage on farms that multiple functional forms can work (i.e. a linear relationship or a quadratic relationship with either increasing or decreasing returns to scale). In many cases there is not enough data (or degrees of freedom) to properly test the functional forms and select among them (what he calls the “identification problem”).

He believes the job of any researcher is “to report economically and informatively the mapping from assumptions into inferences”, identifying which forms are accepted or rejected and why. By this he hopes researchers can reduce the “whimsical character of econometric inference.”

   Related Questions in Microeconomics

  • Q : Depending LEAST interest rate Into the

    Into the long run, interest rates depend LEAST upon the: (1) premiums needed to induce savers to delay consumption. (2) premiums necessary to induce wealth holders to sacrifice liquidity. (3) productivity of new capital. (4) demands and supplies of lo

  • Q : Total revenue raised by output

    A firm’s total revenue can definitely be raised by decreasing its output when: (1) its supply curve is perfectly price inelastic. (2) the demand curve for its output is relatively income inelastic. (3) this is currently losing money each period.

  • Q : Theory of the Firm The advantages that

    The advantages that firms confer on society do not comprise: (i) Decreasing the transaction costs. (ii) Raising consumer purchasing power. (iii) Facilitating the specialization in production. (iv) Raising the consumer demand. (v) Boosting the national income.

  • Q : Maximize profit or minimizes losses

    Assume that a monopolist faces a demand curve that is higher at several output levels than is the firm’s average variable cost curve. Therefore the firm will generate where MR is equal to MC to maximize: (w) total revenue. (x) consumer surplus.

  • Q : Monopolistic competition in long run

    When this firm initially had important market power along with potential long-run economic profit, a likely cause of the firm finally being in a stable equilibrium of an $18 price and output of 5,000 units every day would be:  (1

  • Q : Interest Rate by Holding a Bond When

    When you hold a bond if the interest rate rises, you will: (w) have less money when you sell it. (x) receive more interest income. (y) gain by shifting funds to the stock market. (z) eventually spend more and save more.

    Q : What supply curve illustrates What

    What supply curve illustrates?

  • Q : Competitive Markets and Labor unions I

    I have a problem in economics on Competitive Markets-Labor unions. Please help me in the following question. The purely competitive labor markets are not characterized through: (1) Most of the individual buyers and sellers of the labor services. (2) S

  • Q : What is the equilibrium price and

      Objectives: This assessment item relates to the course learning outcomes 1, 2 and 3 as listed in Part A. Question 1 (22 marks) (a) Consider the market represented by the schedule in the table below. (5 marks) Price Quantity demanded Quantity

  • Q : Power monopsonist I have a problem in

    I have a problem in economics on Power of monopsonist. Please help me in the given question. The firm which is the sole buyer of a specific good or resource is a: (m) Monopsonist. (n) Plutocracy. (o) Bilateral monopolist. (p) Price discriminator. (q) Conglomerate.