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I am starting to work on an IO model and I am puzzled in front of the choice of the appropriate utility function. Since the concept of utility is so abstract, and one cannot directly refer to empirical articles on what factors should the decision be based on? Is it exclusively on the basis of what the assumptions on marginal effects of the variables taken into account are? Isn't this prone to subjective reasoning that may bring researchers to forge their result based on a particular specification? An example of this may be the results one obtain in Hotelling models depending on the transportation cost functions, how do you choose? Thanks, and sorry if the question seems to vague.

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    $\begingroup$ Do you want to create a purely theoretical model, or do you want to quantify everything empirically? $\endgroup$ Apr 14 at 17:01
  • $\begingroup$ The point is exactly this, the model is purely theoretical although I would like to add empirical evidences to support why this is the right model. For some models I have trouble in thinking to a way to quantify things empirically, and indeed most of the purely theoretical models in spatial settings do not provide any empirical support. So how do you claim that your functional specification is the right one? $\endgroup$ Apr 16 at 10:12

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