The Stochastic Coefficients Approach to Econometric Modeling Part I: A Critique of Fixed Coefficients Models

Stochastic coefficients models can provide accurate agricultural secto forecasts and useful policy analysis Coefficient variation may occur for many reasons including aggregating over micro units, omitting variable, using an incorrect functional form, and allowing for a dynamic economic theory of optimizing behavior In the first article in this series of three, we address the logical problems with fixed coefficients models A number of auxiliary and possibly contradictory assumptions are imposed on econometric models to make them empirically manageable In the seconf and third articles, we will show how stochastic coefficients models eliminate the logical problems associated with fixed coefficients models