For the well-known Fay-Herriot small area model, standard variance component estimation methods frequently produce zero estimates of the strictly positive model variance. As a consequence, an empirical best linear unbiased predictor of a small area mean, commonly used in small area estimation,...

We derive a new class of priors for the variance component in the Fay--Herriot model, a mixed regression model widely used in small area estimation. This class includes the well-known uniform or superharmonic prior. Through simulation we illustrate the use of our class of priors. Copyright 2008,...