Chapter 26
FUNCTIONAL FORMS IN ECONOMETRIC
MODEL BUILDING*
LAWRENCE J. LAU
Stanford University
Contents
1. Introduction
2. Criteria for the selection of functional forms
2.1. Theoretical consistency
2.2. Domain of applicability
2.3. Flexibility
2.4. Computational facility
2.5. Factual conformity
3. Compatibility of the criteria for the selection of functional forms
3.1. Incompatibility of a global domain of applicability and flexibility
3.2. Incompatibility of computational facility and factual conformity
3.3. Incompatibility of a global domain of applicability, flexibility and
computational facility
4. Concluding remarks
Appendix 1
References