Sensitivity of the Gme Estimates to Support Bounds

UC Davis, Ag. and Resource Econ. Working Paper No. 01-008

19 Pages Posted: 16 Nov 2001

See all articles by Quirino Paris

Quirino Paris

University of California, Davis - Department of Agricultural and Resource Economics

Michael R. Caputo

University of Central Florida - College of Business Administration - Department of Economics

Date Written: August 2001

Abstract

The claim has been made that the Generalized Maximum Entropy (GME) estimator of Golan, Judge and Miller is not sensitive to variations in the support bounds of either the parameters or the error terms. In this paper, we scrutinized this claim by means of Monte Carlo experiments and found that the parameter estimates are impacted in a substantial way by these changes. We also analyzed the famous data sample on the US manufacturing industry used by Cobb and Douglas in 1934 and found that the GME estimator is very sensitive to changes in support bounds. We conclude with a general result by Caputo and Paris according to which any support bound variation produces unexpected responses in the parameter estimates.

Keywords: generalized maximum entropy, support bounds, sensitivity analysis

JEL Classification: C2, C5

Suggested Citation

Paris, Quirino and Caputo, Michael R., Sensitivity of the Gme Estimates to Support Bounds (August 2001). UC Davis, Ag. and Resource Econ. Working Paper No. 01-008, Available at SSRN: https://ssrn.com/abstract=290816 or http://dx.doi.org/10.2139/ssrn.290816

Quirino Paris (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-1528 (Phone)
530-752-5614 (Fax)

Michael R. Caputo

University of Central Florida - College of Business Administration - Department of Economics ( email )

Orlando, FL 32816-1400
United States