Journal Article

An Analysis of Ill-Posed Production Problems Using Maximum Entropy

Quirino Paris and Richard E. Howitt

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 80, issue 1, pages 124-138
Published in print February 1998 | ISSN: 0002-9092
Published online February 1998 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/3180275
An Analysis of Ill-Posed Production Problems Using Maximum Entropy

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Production economics problems are often ill-posed. This means that the number of parameters to be estimated is greater than the number of observations. In this article we show how to recover flexible cost functions from very limited data sets using a maximum entropy approach. We also argue that there exists a continuum of analysis between mathematical programming and traditional econometric techniques which is based solely upon the available information. The limiting case of a multi-output cost function recovered using only a single observation of a farmer's allocation decisions can be easily extended to handle more than one observation.

Keywords: Cholesky factorization; flexible functional forms; ill-posed problems; maximum entropy; positive mathematical programming; C510; D240; Q120

Journal Article.  0 words. 

Subjects: Production and Organizations ; Econometric Modelling ; Agricultural Economics

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