Money and Markets: Essays in Honor of Leland B. Yeager

72 Steven B. Caudilland no information can be gleaned from the hypothesis tests. Given that thePC approach leads to poor estimates of jumbles of parameters, the goal of measurementis lost immediately. The uselessness of the hypothesis tests is more difficult tocharacterize. The information in a hypothesis test should convince the unconvinced,or at least cause the unconvinced to pause. 6 If a regression model providesno useful parameter estimates and “unconvincing” hypothesis test results, it is a badregression.For public choice empirical research the implications of using the PC approachare that the goals of hypothesis testing and measurement cannot possibly beachieved. In the sociology of economics the PC approach is employed to search forcorrelations. 7Why so many bad regressions?Why are there so many bad regressions in the areas of public choice and thesociology of economics? The explanation follows the reasons as to why there are nostructural models, why many proxies are used, and why advanced econometricmethods are shunned. I also explore the merits of suggesting that empirical researchis as poor as the market will bear, using an argument similar to that made byLaband and Taylor (1992). The Laband and Taylor justification is explored anddismissed.In order to explain the low quality of empirical research in public choice, one candraw upon the distinction made by Holcombe (1989) between a theory and amodel. Holcombe defines a theory as “a coherent group of general propositionsused as principles of explanation for a general class of phenomena” (see Holcombe1989: 26). Holcombe states that theories explain nothing about the real world.Holcombe says, “theories may be developed into models by making assumptionsthat link the conditions of the theory to the conditions of the real world.” InHolcombe’s view a model is “a framework for analysis that duplicates somecharacteristics of the phenomena being modeled” (Holcombe 1989: 27). The gapbetween theory and model in PC research is large. Data are what researchers use tobridge the gap, but data in the PC area are not of high quality and usually bear littleresemblance to the phenomenon being studied.Part of the problem with empirical research in public choice is that much of theeconomic activity examined is non-market. The usual economic data on costs,prices, incomes, inputs, and outputs either do not exist or are poorly measured.As economists, we desire to characterize the world using familiar and rigorouslydefinedconcepts like supply and demand curves, cost functions, and productionfunctions. The poor association of available data to costs, prices, incomes, inputs,and outputs in the PC area makes the use of these familiar constructs problematic.The implication of these data problems is that models in the public choice areacannot bear close association to theories. The gap between theory and model in thepublic choice area is much larger than in other areas of economics. The situation iseven worse in the area of the sociology of economics for there are no theories to