Testing for the monotone likelihood ratio assumption

Jutta Roosen, David A. Hennessy

Research output: Contribution to journalReview articlepeer-review

11 Scopus citations

Abstract

Although monotonicity of the likelihood ratio for conditioned densities is a common technical assumption in economic models, empirical tests for its plausibility do not appear to have been conducted. This article develops such a test based on the theory of order-restricted inference that is robust with respect to the correlation structure of the distributions being compared. The test is applied to study the technology revealed by agricultural production experiments. For the data under scrutiny, the results support the monotone likelihood ratio assumption. In a second application, we find some support for the assumption of affiliation among bids cast in a multiple-round Vickrey auction for a consumption good.

Original languageEnglish
Pages (from-to)358-366
Number of pages9
JournalJournal of Business and Economic Statistics
Volume22
Issue number3
DOIs
StatePublished - Jul 2004
Externally publishedYes

Keywords

  • Affiliation
  • Auction
  • Likelihood ratio
  • Order-restricted inference
  • Stochastic order

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