Imposing parameter inequality restrictions using the principle of maximum entropy

Randall C. Campbell

Department of Finance and Economics, Mississippi State University, Mississippi State, MS  39762, USA

R. Carter Hill

Department of Economics, Louisiana State University, Baton Rouge, LA  70803, USA

 Abstract

In this paper, we propose a new way to impose parameter inequality constraints in a linear regression model using the principle of maximum entropy.  We describe the generalized maximum entropy (GME) estimator and develop a method for imposing parameter inequality restrictions through the traditional GME parameter support matrix.  In addition, we develop a more general parameter support matrix that allows us to impose a broader set of restrictions than is possible under the traditional formulation.     

Several examples, not included in the paper, of imposing inequality restrictions using maximum entropy are described in maxent.pdf.