Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

however, because of their nature, the's E. cannot be observed
by the economist (1) . If we were to test this "choice of mode" model
on a sample of firms, no-information would be available on these
"additional costs". Let us examine how this model could be set up
for a statistical investigation. Assume that Y ij is distributed with -
mean U. and variance a u over a population of firms (which produce a
(2)
good and must choose which of two modes to use. • According to this
model, the firms which record a positive value ofshould choose to
ship all of their output by mode 1, those which have a negative value
ofshould Y ij choose mode 2 , and those with Yij = 0 shnuld be
indifferent between modes. The situation is illustrated by Diagram
2, where 0 appears as the critical value separating two
regions. The region where net income is greater than / ij. should ship
only by mode 1 while that where net income is less thanshould
ship only by mode 2. Note that the mean value U il may be different
from zero, as it is the case in Diagram
Diagram 2
mode 2 shipments ir 1 mode 1 shiPhonts
(1) Note that all these costs are highly particular to each shipper
and vary according to their scale of operation and location.
(2) Note that nothing is assumed concerning the form of the
• distribution.
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