Wow! eBook
Encompassing: Practical Applications Through Simulation
Author(s): Jean-Francois Richard (Author), Robert C. Marshall (Author), Chaohai Shen (Author)
- Publisher: The MIT Press
- Publication Date: August 26, 2025
- Language: English
- Print length: 142 pages
- ISBN-10: 0262553090
- ISBN-13: 9780262553094
Book Description
To account for the universal deficiency of all economic models, Jean-François Richard, Robert Marshall, and Chaohai Shen propose in this book an operational test of whether a model accounts for—or encompasses—key results of alternative models. This simulation-based approach is distinct from the likelihood-based approach of forty-plus years ago. It is specifically designed to be applicable to serious nonlinear applications, under the minimal requirement that the models under consideration be amenable to Monte Carlo simulations.
The method of simulated moments, increasingly applied in major empirical applications, provides the ideal framework to compute a wide range of formal simulation-based encompassing test statistics. The authors argue that simulation-based encompassing is particularly easy to implement when the model of interest incorporates novel features relative to an earlier “benchmark” model: that is, “nests” the latter.
The book should be of particular interest to practitioners, researchers, and graduate students who wish to validate their models using simulation-based encompassing as a rigorous scientific alternative to more informal model comparisons.
Editorial Reviews
Review
—Sir David F. Hendry, Co-director of Climate Econometrics and Senior Research Fellow, Nuffield College
“The authors succeed brilliantly in producing a self-contained monograph that lays out a coherent framework to tackle a large number of important substantive issues. What I found most impressive is that while staying focused, the book covers a lot of ground and provides a very useful toolbox for empirical economists across the spectrum.”
“This book operationalizes the answer to the question of whether one model ‘encompasses’ another in a way that policy-oriented empiricists can easily implement, so long as the models are amenable to simulation. It is a must-read for empiricists who need to understand how their modeling assumptions affect policy conclusions.”
About the Author
Robert C. Marshall is Distinguished Professor of Economics at Penn State University. He has published over thirty articles regarding bidder collusion and cartels and is the author, with Leslie M. Marx, of
Economics of Collusion (MIT Press).Chaohai Shen is Associate Professor of Economics at East China Normal University. His areas of research include economics of collusion, industrial organization, and applied econometrics.
