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An Analysis of Ill‐Posed Production Problems Using Maximum Entropy
Author(s) -
Paris Quirino,
Howitt Richard E.
Publication year - 1998
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/3180275
Subject(s) - limiting , principle of maximum entropy , production (economics) , mathematical optimization , entropy (arrow of time) , computer science , function (biology) , entropy production , econometrics , mathematics , mathematical economics , economics , statistics , statistical physics , microeconomics , mechanical engineering , physics , quantum mechanics , evolutionary biology , engineering , biology
Abstract 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.