On the Estimation Technique to Reveal Government Distributional Weights
Applied Economics, Volume 23, 1991 - Issue 5
Posted: 7 Nov 2018
Date Written: 1991
Abstract
This paper provides a critique of techiniques for estimating distributional weights using the revealed preference (imputational) approach. Stochastic versus deterministic methods are contrasted and a preference for the stochastic methodology is indicated. It argues that Probit is the most appropriate technique. This allows both decision-marker error (an inability to make full interpersonal income comparisons, as suggested by Basu) and the imputer's error (an inability to observe all components in the utiliy function, as suggested by McFadden) to be incorporated in the estimation equation. The implications of using Probit are discussed in the context of UK railway closure decisions.
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