On the Use of Furnival Index in the Choice of Functional forms in Econometric Studies

Abstract

Most of the problems in economics are concerned with the study of relationships between economic variables Such a relationship in the form of a mathematical equation is generally used for prediction purposes Hence the specification of an appropriate functional form for a particular situation is of utmost significance. The functional form under a class of linear models may be linear, quadratic, logarithmic, hyperbolic or may be of a mixed nature. It is quite vexing to decide which functional form is most suitable to the situation under study. Here an attempt has been made to illustrate with an example as how the use of Furnival Index can be helpful to arrive at the most appropriate functional form. This may be useful in the study of forest economics problems.