Econometric Specification and Identification of the Behavior of Economic Agents

Abstract

The present study examines the combination of economic theory, structure of the econometric model, and estimation techniques to extract the maximum possible information about the behavior of economic agents from observed decisions. The analysis is set in the framework of micro economic behavior and industrial organization. The relevant theoretical structures generally assume optimization behavior of economic agents. However, optimization models do not have a unique structure and are generally difficult to identify. Consequently, a variety of second best specification and estimation methods emerged. But they entail loss of information. Hence, greater efforts devoted to the identification of optimization models will enrich our understanding of economic behavior. Progress in this direction will eventually render a vast majority of existing econometric techniques obsolete.