On the relationship between the reversed hazard rate and elasticity |
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Authors: | Ernesto J. Veres-Ferrer Jose M. Pavía |
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Affiliation: | 1. Department of Applied Economics, Facultad de Economía, Universitat de Valencia, Campus Els Tarongers, 46022, Valencia, Spain
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Abstract: | Despite hazard and reversed hazard rates sharing a number of similar aspects, reversed hazard functions are far less frequently used. Understanding their meaning is not a simple task. The aim of this paper is to expand the usefulness of the reversed hazard function by relating it to other well-known concepts broadly used in economics: (linear or cumulative) rates of increase and elasticity. This will make it possible (i) to improve our understanding of the consequences of using a particular distribution and, in certain cases, (ii) to introduce our hypotheses and knowledge about the random process in a more meaningful and intuitive way, thus providing a means to achieving distributions that would otherwise be hardly imaginable or justifiable. |
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