Improving estimates of economic parameters by use of ridge regression with production function applications

William G. Brown, Bruce R. Beattie

Research output: Contribution to journalArticle

18 Scopus citations

Abstract

Ridge regression is a promising alternative to deletion of relevant variables for alleviating multicollinearity and can provide smaller mean square error estimates than unbiased methods such as OLS. However, ridge estimates can also be unreliable and misleading under certain conditions. To avoid erroneous conclusions from ridge regression, some prior knowledge about the true regression coefficients is helpful. A theorem on expected bias implies that ridge regression will give much better results for some economic models, such as certain production functions, than for others because of smaller expected bias.

Original languageEnglish (US)
Pages (from-to)21-32
Number of pages12
JournalAmerican Journal of Agricultural Economics
Volume57
Issue number1
DOIs
StatePublished - Feb 1975

    Fingerprint

Keywords

  • Economic model estimation
  • Multicollinearity
  • Ridge regression

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

Cite this