Re: OPE-L:_Wage_share (and gamma)

From: Ian Wright (iwright@GMAIL.COM)
Date: Sun Sep 19 2004 - 23:34:51 EDT

Hi Allin

> > In the social relations model the distribution can be approximated
> > by a parameter-mix of ratios of normal variates with means and
> > variances distributed according to a power-law. This is a
> > 7-parameter distribution...
> Gak!  Doesn't that sound like over-fitting?  Does Occam approve?

This distribution is derived from the dynamics of the model, given
some simplifying assumptions. The distribution hasn't been arbitrarily
picked to fit a set of data. But I know that some of the 7 parameters
have functional relations between them. If I could analytically
determine those relations I think the number of parameters could be
reduced. But I haven't been able to do that as yet. The parameters,
however, have explicit semantics as they have been deduced from the
model, which would not be the case if a 7-parameter distribution had
simply been fitted to the data. For example, the parameters are things
like the mean value-added per worker, the mean cost per worker, the
size of the employed workforce, the Pareto exponent of the firm size
distribution, and so forth. In principle, these can be obtained from
empirical data. But this is work in progress, and I am concerned to
square all this with Julian's empirical and theoretical work.

More generally, if Occam's principle is viewed as an optimisation
principle, i.e. minimise model complexity under the constraint of
reproducing the known data, then we can't really say that n parameters
are "too much". It depends also on the complexity of the data.


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