A Multicriteria Approach to Model Specification and Estimation

This study considers why multicriteria techniques have not been widely adopted in econometrics to date. It then presents a multicriteria approach to estimation problems for which the basic objective is to learn about the sequence of states through which a process has passed. The multicriteria approach involves the construction of a "cost efficient frontier" which determines the set of state trajectory estimates that are minimally incompatible with a specified set of model criteria. This approach includes flexible least squares (FLS) and generalized flexible least squares (GFLS) as special cases; see the articles on FLS and GFLS cited below. The study also surveys recent theoretical and empirical work that makes use of FLS and GFLS. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/flshome.htm