Econometrics of Fair Values

The properties of many important valuation rules can be quantified, examined, and compared in a unified framework to assist policy decisions. Valuation rules can be viewed as econometric estimators of unobserved values of aggregates. Which valuation rule has minimum mean squared error (relative to the unobserved value of bundles of resources) is a matter of econometrics, not of theory or principle; it depends in a known fashion on the relative magnitudes of the parameters-price volatility and measurement errors-of the economy, industry, or firm. In general, no valuation rule, fair or not, dominates the others. Given the parameters of an environment, this framework can help identify efficient valuation rules. [PUBLICATION ABSTRACT]