Semiparametric inference for the dominance index under the density ratio model

SUMMARY

An important and often discussed research problem in statistics is how to compare several populations; examples arise in medical science, engineering, finance and other fields. Often population means or medians are compared. However, one population may have a higher mean income, for example, because of a small number of super-rich individuals; the mean therefore may not reflect the wealth of the general population. Instead, an index of the degree of stochastic dominance of one population over another would better reflect their relative wealth. Currently, we can estimate such an index under restrictive conditions, but there is no generic estimator with a known asymptotic distribution. In this paper, we suggest linking the populations via the density ratio model. Under this model, we develop an empirical likelihood estimator and establish its asymptotic normality. In addition, we improve the estimation efficiency by examining the similarities between the populations. Furthermore, we provide a valid bootstrap method for hypothesis testing and the construction of confidence intervals. Simulation experiments show that the proposed estimator substantially improves the estimation efficiency and power of the test, and leads to confidence intervals with satisfactorily precise coverage probabilities. It is also robust with respect to mild model misspecification. Two examples are given to demonstrate the usefulness of both the method and the concept.

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