Selection Procedures for Economics

By William C. Horrace

Abstract

In a presentation to the American Economics Association, McCloskey (1998) argued that "statistical significance is bankrupt" and that economists' time would be "better spent on finding out How Big Is Big." This abbreviated survey is devoted to methods of determining "How Big Is Big." It is concerned with a rich body of literature called selection procedures, which are statistical methods that allow empiricists to attach confidence levels to statements about the relative magnitudes of population parameters (i.e., How Big Is Big). Despite their prolonged existence and common use in other fields, selection procedures have gone relatively unnoticed in the fields of economics, and, perhaps, their use is long overdue. The purpose of this article is to provide a brief survey of selection procedures as an introduction to economists and econometricians and to illustrate their use in economics by discussing a few potential applications. Both simulated and empirical examples are provided.

JEL Codes: C10, C12
Keywords: ranking and selection, order statistics, statistical inference

Cite as:
William Horrace, Selection Procedures for Order Statistics in Empirical Economic Studies, Applied Economics Quarterly 52/4 (2006), pages 357-374.