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Econometric Analysis: Looking at Flexibility in Models

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Updated:  
2016-03-26 14:43:35
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From The Book:  
Managerial Economics For Dummies
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You may want to allow your econometric model to have some flexibility, because economic relationships are rarely linear. Many situations are subject to the "law" of diminishing marginal benefits and/or increasing marginal costs, which implies that the impact of the independent variables won't be constant (linear).

The precise functional form depends on your specific application, but the most common are as follows:

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About This Article

This article is from the book: 

About the book author:

Roberto Pedace, PhD, is an associate professor in the Department of Economics at Scripps College. His published work has appeared in Economic Inquiry, Industrial Relations, the Southern Economic Journal, Contemporary Economic Policy, the Journal of Sports Economics, and other outlets.