Policy-related small-area estimation

  • Nicholas T. Longford SNTL and Departament d’Economia i Empresa, Universitat Pompeu Fabra, c/ Ramon Trias Fargas 25 – 27, 08005 Barcelona, Spain
Keywords: Borrowing strength, Composition, Empirical Bayes, Expected loss, Exploiting similarity, Small-area estimation, Utility function


A method of small-area estimation with a utility function is developed. The utility characterises a policy planned to be implemented in each area, based on the area’s estimate of a key quantity. It is shown by simulations that the commonly applied composite and empirical Bayes estimators are inefficient for a wide range of asymmetric utility functions. An argument is presented for a closer integration of estimation and (regional) policy making because no single small-area estimator is suitable for a wide range of purposes.


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