Henri Theil’s Contributions to Demand Analysis

Henri Theil has made numerous, influential contributions to economics and econometrics. These include the theory of economic policy, information theory, forecasting, econometric methodology and demand analysis, to name just a few areas of major contributions. There is no question that Theil’s work has a style all of its own: it is characterized by insight, ingenuity, elegance and an almost unique combination of theory and measurement. Most (if not all) of his research in econometric methodology, for instance, has applications centrally in mind. A good example is the 2SLS estimator. The early work of the Cowles Commission on the estimation of simultaneous equation systems represented a major watershed in econometrics. However, the estimation methods they proposed were demanding to the point of being almost impractical given the state of computing techniques at that time. Theil solved this problem in his usual style by devising the 2SLS estimator which involves simply running two LS regressions.