Estimating the Ill-posed Problem in Agricultural Economics Using Generalized Maximum Entropy

Abstract
One of the most important problems in econometric methods, in order to estimate the considered parameters, is called the ill-posed problem. This problem occurs due to the lack of sufficient data which causes very low or, in some cases, negative degree of freedom. The ill-posed problems restrict researchers in agricultural economics studies especially in developing countries such as Iran. This problem is more evident in regional or provincial cases. With this approach and in order to create a favorable environment for economic researches in the agriculture sector, this paper applied the General Maximum Entropy (GME) approach to calculate the supply and demand elasticities of provincial wheat markets in the case of insufficient data. Results indicated that under such circumstances, the GME estimations are more efficient than the ordinary least squares (OLS) ones; but in the case of sufficient data, the classical estimation methods would be preferable.

JEL Classification: Q1, Q17, D49, N50

Keywords:
Ill-Posed Problem, Maximum Entropy, Demand and Supply Elasticites