‘bivTenvarion4e REGIONAL SCIENCE RESIEW 20, 1 2: 9-33 (1997) THE EXPANSION METHOD, MATHEMATICAL MODELING, AND SPATIAL ECONOMETRICS EMtio CaseTTt Department of Economics. Odense Universiy; Odense, Denmark (ave Bonet) Consider the mode of enquiry that involves thinking about thinking. The expansion methodology ‘rginates within trom an analysis of he thought processes presiding upon ihe construction of any mathematical modcs of any realities, The focal point ofthis paper is a discussion ofthe relations beeween the expansion methodslogy, mathematical modeling, snd spatial econometrics, INTRODUCTION The expansion method (Casetti 1972, 1986, 1991, 1995) originates from an analysis of the thought processes that lead (othe construction of any mathematical ‘models of any realities. The expansion method encompasses a technique for con- structing mathematical models and the rationales concerning its use. In a nutshell, it involves widening the seope of a simpler “initial model” by redefining some or all ofits parameters into functions of "expansion" variables or variates that index substantively relevant “context” of the model. The “terminal model” thus pro- duced includes both the initial model and a specification of its contextual variation. “The expansion method meets the needs of the analyst who wishes to use within his/her disciplinary frame of reference models that originated in another discipline. Its relevance to the spatial disciplines becomes readily apparent con- sidering that models born aspatial can be expanded to encompass spatial contexts. 'A brief example can show what the expansion method is useful for. Consider ‘an analyst interested in modeling the propagation of economic growth from a pole into the pole’s hinterland, The analyst is aware of the classical notion that in the “explosive” phases of modern economic growth the percent increments of product per capita tend to be proportional o the levels of product per capita. This, notion suggests as starting point a model relating the logarithm of product per capita to a linear function of time. This model, however, does not involve space. How can the analyst introduce space into it? With the expansion methodology itis easy to do so, by redefining the parameters of the nonspatial model into functions of spatial variables, and then replacing the expanded parameters into the initial model. Since in this ease economic growth propagates a pole into its hinterland, the parameters of the ini- tial model are expanded into a function of distance from the pole. The terminal ‘model obtained will involve both time and space. ‘Comments anisms by Professor Luc Anselin and by two anonymous reviewers ar gate fully ackno edged Received August 1995; revised January 1996 and August 19960 INTERNATIONAL REGIONAL SCIENCE REVIEW, VOL 20. NOS. 42,1997 Consider next this related scenario, The analyst starts from a model of the spatial distribution of product per capita. Under the presupposition that economic growth spreads from a pole into its hinterland, the model relates the logarithm of Product per capita to distance from the pole. Suppose that the analyst wishes to add a time dimension to this model in order to resolve the temporal changes in the spatial distribution of product per capita. To do so, the parameters ofthe spa- tial model are expanded into functions of time. For appropriate functional rela tionships, the terminal model arrived at in this scenario is identical to the one ‘obtained in the previous scenario, In fact, when a terminal model is generated by expanding the parameters of a linear initial model into linear functions of expan- sion variables, a dual formulation is implicitly defined with a dual initial model and dual expansion equations that produce an identical terminal model. In both scenarios an initial model is expanded to encompass a context extemal to it. In the first one, the initial model is temporal and the context is spatial. In the second scenario, the initial model is spatial and its context is temporal. The notion of context employed here is very general: the expansion variables can refer to any dimension of reality that is outside the initial model. However, the model-context dichotomy is not the only foundation of the expansions approach to constructing models. A second general conceptualization of the expansion approach rests on the notion of combining (“interacting”) altema- tive or competing models. These models could originate from theories in different disciplines or in different subfields of the same discipline, andior could represent distinct empirical regularities. To clarify, suppose that in the case of polarized growth the analyst stars from two models. One of these is @ linear model relating the logarithm of product per capita to time, while the second is a linear model relating the logarithm of product per capita to distance from a growth pole, With the expansion methodology, the two models are combined into a supermodel by expanding the parameters of one into the independent variables of the other. Examples of applications of the expansion method to constructing spatial ‘temporal models can be found in Demko and Casetti (1970), Casetti and Semple (1969), Odland, Casett, and King (1973), Uyanga (1977), Casetti and Krakover (1990), Pandit and Bagchi-Sen (1993), and Fan (1994), to name a few. The com- bination of models by expansions is discussed in Casett (1986), and constitutes the methodological focal point of Kristensen and Tkocs (1994) and Zhang and Kristensen (1995). Again, the expansion method is a technique and a research philosophy con- ‘cemed with the “construction” of mathematical models of substantive realities, It can be employed to construct models intended for any one of the many applica- tions for which mathematical models are appropriate. ‘The plan of this paper is as follows. The first few sections will discuss math- ematical modeling in general. To this effect, the mathematical models are defined, and the conventional and expansions approaches to the construction of mathematical models are outlined and contrasted, These approaches to model(CASETTL EXPANSION METHOD, MATHEMATICAL MODELING, AND SPATIAL ECONOMETRICS 11 construction have implications on the role and scope of modeling, on what is ‘modeled and why, and in general on the direction that model-based research will take. Such implications will be identified and discussed. The themes addressed in this cluster of sections refer to any mathematical model, not just to the ones intended for econometric estimation and inference. In the next cluster of sections, the scope of this paper is narrowed to encompass models intended for estimation and testing. These sections will address the relationships between econometric ‘models and the expansion method. Special attention is given to the econometric varying parameter models. The scope of the paper is narrowed further in the sub- sequent cluster of sections that focus on spatial modeling, spatial expansions, and spatial econometrics. MATHEMATICAL MODELS Generalities There are two major approaches to the construction of mathematical models, and the expansion methodology is one of them. The other is called here the con- ventional model construction. It is useful to begin by defining the mathematical ‘models, and the conventional and expansions approaches to model construetion. The models dealt with here are mathematical models of some phase of real- ity, broadly intended to encompass their deterministic, stochastic, and mixed counterparts. Mathematical modeling arises from the wedding of substantive conceptual frames of reference and analytical mathematical structures (analytical structures for shor). Mathematics defines analytical strutures such as equations, inequalities, probability distributions, and stochastic processes, in which var ables, random variables, and parameters appear. The scientific disciplines con- cemed with the study of any aspects of reality, in the social sciences and elsewhere, define entities (“objects”) with which they are concerned, variables that take specific values for these objects, and relations among these variables The mathematical models of realities consis of analytical structures with some or all of the variables and parameters in them linked to the substantive conceptual frame of reference ofa scientific discipline. There are at least two types-of conventional model construction, referred to here as A and B. Type A consists in the straightforward linking of an analytical structure to a substantive frame of reference. Type B involves extracting a new ‘mathematical model from preexisting one(s) by one of a varity of mathematical manipulations. As an example of a type A model construction, suppose that a substantive discipline has defined variables and important relations among these variables. A scholar from this discipline who has in mind an inventory of analyti= cal structures selects one of these structures and links it to one such important relation, When this link is established, a mathematical model of some aspect of reality is born.2 INTERNATIONAL REGIONAL SCIENCE REVIEW, VOL. 20, NOS. 142, 1997 ‘The type B conventional model building consists in extracting models from ‘other models by mathematical manipulations such as “solving” or “optimizing.” Suppose for example that a demand function is obtained by the conventional maximization of a utility function subject to a budget constraint. The demand function is a mathematical model, but so are also the utility function and the bud- ‘get constraint. Another example is solving a differential equation that relates the rate of change ofa country’s population to its population size. The solution of the differential equation and the differential equation itself are both mathematical models, While conventional model building is a one-stage operation, the expansion modeling involves sequences of stages. Specifically, each expansion consists of two stages, and the expansions can be iterated. The first stage in one round of expansions involves defining an “initial model.” The initial model can be con structed by conventional modeling, may be the result of a previous expansion, ot may be selected from models in the literature, In the second stage, some or all of the parameters appearing in the initial models are redefined by “expansion equa- tions” into a deterministic stochastic or mixed function of appropriate variables ‘or random variables, Essentially, the second stage in an expansion sequence con- sists in the conventional modeling of a pre-existing model's parameters. ‘This conventional modeling of parameters also can be of types A or B. In type A cases, an expansion equation results from the linking of substantive vari- ables (some of which are the parameters of the initial model redefined as vari- ables) to a suitable analytical structure. On the other hand, in @ type B situation, the expansion equations are arrived at through multiple steps. To exemplify, sup- pose that the parameters a and) of a model y = a+ ix are expanded by the differential equations (DEs) da/dt = f(z) and dB/dt = g(z). Both these DEs and their solutions qualify as expansion equations. However, ifthe solutions of the DES are selected as expansion equations, clearly they are arrived at by an interme- diate manipulation that, in this case, consists in a “solving.” In passing, note that the parameters in the initial conditions added in the process can also be expanded. ‘An “initial model, expansion equations, terminal model” sequence can be conceptualized in terms of the notions of structural and reduced form equations. Specifically, an initial model and its expansions can be regarded as quasiestruc- tural equations of the terminal model obtained from them. In tum, a terminal model can be viewed as the quasi-reduced form equation obtained from these structural equations. Although in some circumstances it might be useful to work with the structural equations of an expansion, in most cases the terminal model, namely, the reduced form of the expansions, is more usefull and convenient to use, and constitutes the proper starting point for any subsequent estimation, opti~ mization, or solution. ‘The expansions can be iterated, as the terminal model produced by one round of expansions can be the initial model in a subsequent expansion. In the case of 7 iterated expansions, the number of modeling stages is n+ |, since the sequence involves one initial model and 1 expansion stages.CCASETTI EXPANSION METHOD, MATHEMATICAL MODELING, AND SPATIAL ECONOMETRICS 13, ‘The expansions introduce structure in model construction and can be employed to enforce research priotties. Ifso, the initial model implements first- order priorities because it is constructed first, in terms of its own rationale, and disregarding anything “outside” it. Also, choosing an initial model constitutes a task that has to be completed before the subsequent tasks (and priorities) are addressed, The next stage, which involves expanding the parameters in the inital ‘model, allows the addition of less important complexities after the more impor- tant ones have been taken care of. However, prioritization may play litle or no role in some applications of the expansion methodology, such as the ones in which combining established and well-defined models from the literature is the primary motivation, The practices and styles of model construction can affect the conduct and direction of the research in which they are embedded. The conventional and the expansion model construction modes carry different intrinsic suggestions as to what the modeler should be doing next. Conversely, ideologies and presupposi- tions presiding over given styles and manners of enquiry influence the choice of model construction modes, and may be reinforced by the very choices that they have inspired, In the next few paragraphs, these themes are discussed in order to bring into focus some aspects of the research philosophy linked to the expansion method, Conventional Model Construction Applying this train of thought to modeling, one readily sees that the conven- tional and the expansion modeling carry suggestions and induce preferences that are substantially different. Consider first the conventional model construction that involves linking a substantive frame of reference to a mathematical structure, Clearly, in terms of conventional model building, simple models are easy to construct, more complex ones are disproportionately more difficult, and small increments in realism tend to be paid for by much greater increases in uncon- trolled and inelegant mathematical complexity. This is why the conventional ‘model building tends to engender a preference (a “bias”) for simple elegant mod- els with few variables and with a strong disciplinary (as opposed to interdiscipli- nary) flavor. TThe models in the literature vary widely in terms of the real-world eomplex- ities that they can accommodate. Indeed, some of these models, such as the ones used in input/output analyses, in mathematical programming, in simulations, and in regression work, can be widened to encompass sizable complexities. Usually they do so by stretching mathematical structures capable of subsuming an unspecified number of variables, terms, or equations. In many cases, stretching one can recognize some form of expansions. For instance, adding inde- pendent variables to a regression model involves the expansion of the model's intercept. In the balance, however, there is no question that simple models produced by conventional model construction play a major role in the contemporary social“ INTERNATIONAL REGIONAL SCIENCE REVIEW. VOL. 20, NOS. 1.82. 1997 sciences, and that this state of affairs reflects a widespread bias in favor of simple elegant mathematical models. This bias induces a companion bias favoring types and classes of phenomena that can be more easily and successfully handled by simple models. Indeed, in the social sciences, much of the criticism against math- ‘ematical models is leveled both at their inadequate realism and atthe fact that they deal with comparatively narrow and, allegedly, not too interesting clusters of phe- Romena. Instead, itis argued; the big, important, interesting issues stay unmod- cled and unmodelable, Interesting articulations of these criticisms can be found in Harvey (1989: 212 ff.) and in Flowerdew (1989). Possibly, many/most criticisms of mathematical modeling are in reality criticisms of conventional modeling, The simple elegant models may tend to be regarded as “laws,” quasi laws, or candidates for law status. The aspiration to discover “laws,” imported into the social sciences from the Newtonian physics, translates into an aspiration to dis- cover simple, universally valid, invariant models capable of explaining a wide range of seemingly unrelated phenomena, To the extent that a preference for sim- ple models reflects the mechanics of the conventional approach to model con- struction, the conscious or unconscious aspiration to discover social science laws does qualify as a research philosophy congruent with conventional modeling, Model Construction By Expansions Both conventional and expansion modeling link substantive relations 10 mathematical structures. In the expansion modeling, however, (a) the analyst starts from a pre-existing model, (b) some or all of this model's parameters are redefined into variables, and (c) the variables are related to expansion variables by expansion equations. Redefining parameters into variables is tantamount to assuming that the ini- tial model “drifts.” The expansion variables measure aspects of the real world extemal to the mode! and with respect to which one can presume (on substantive grounds) that the initial model drifts. The expansion equations implement the ‘conventional modeling of the initial model’s drift across this context, Within a frame of reference that emphasizes combining models, the expansion variables of ‘one model are the explanatory variables of the other. ‘Two aspects in the mechanics of expansion modeling have implications in terms of the suggestions emanating from them. One aspect is the emphasis on parametric drift, and the other is the structured multistage hierarchical approach to model construction ‘The drift will be focused upon first. The mental habit of considering whether ‘a model's parameters should be redefined into variables and modeled involves ‘moving away from the assumption that models are invariant, and toward the pre- ‘supposition that they drift. This switch leads to a major change in the perception of ‘models, which cease to be candidates for “law” status, and become tools to inter- rogate the world about their drift. Inthe limit, models are no longer required to be “urue.” They are transformed into devices for interrogating shifting realities, with the objective of theorizing and explaining what causes the drift that is uncovered.CCASETTI EXPANSION METHOD, MATHEMATICAL MODELING, AND SPATIAL ECONOMETRICS 15 One focal point of the research philosophy associated with the expansion ‘methodology is critique of the presuppositions of stability and invariance asso- ciated with conventional modeling. It may be argued that these presuppositions are @ component, not necessarily conscious, of the psychological makeup of ‘many/most analytical scholars. The expansion methodology carries within itself the suggestion to search for parametric variation, for the dimensions in terms of which such drift can possibly occur, and for reasons and theories justifying it ‘Comparable suggestions are not associated with conventional modeling, The expansion approach emphasizes structure, stages, and priorities in ‘model construction. It brings structure to model construction because the defini- tion of an initial model and the expansion of its parameters are distinct and sequential tasks, each of which has to be fully completed before the next task is addressed. It may also facilitate prioritizing, since in many applications of the expansion method, the variables in the initial model carry a higher priority than the expansion variables. Inall these respects, the expansions implement, in the realm of modeling, an approach that is universal in scope, and by which Homo sapiens struggled from the dawn of time to grasp complex realities. The human mind cannot address simultaneously too many “things.” Thus, when confronted by a complex situa- tion, humans are driven to extract its essential elements and to construct a simpli- fied representation of it. Dimensions initially abstracted out of this simplified ‘model” are reintroduced at a later stage if the model proves to be inadequate for the purpose intended. Both the initial phase of this process, centered on abstraet- ing a simplified model, and the subsequent phase that involves expanding it to encompass selected aspects of its context, are essential. Thus, the expansion methodology applies to the construction of mathematical models a fundamental approach by which humans cope with complexity Since the expansions can be iterated by expanding the parameters of the ter- ‘minal model produced by a previous round of expansions, a model can be the result of a sequence of stages, each bringing in dimensions that are the next high- est in priority. Each stage in the sequence implements a conventional modeling, ‘which means that the analyst is always confronted by a single conventional mod= cling task at a time. First the essential is abstracted, and then complexities are added, one layer ata time, for as long as itis warranted to do so. ‘The structured multistage recursive nature of the expansion approach to ‘model construction has a wealth of implications on what analysts propound to investigate and model, and on how they will go about doing it. Some of these implications follow. Mathematical modeling spread unequally into the social sciences. It tended to be accepted earlier and to a greater extent by “thematic” disciplines than by “integrative” ones. Thematic disciplines, such as economics and psychology, focus upon a comparatively narrow band of phenomena, in contrast with the inte- erative disciplines, such as anthropology, geography, and regional science, that6 INTERNATIONAL REGIONAL. SCIENCE REVIEW, VOL. 20.NOS.1 2, 1997 cover a much wider range of diverse phenomena, and in many instances input ‘models and conceptualizations from the thematic disciplines. The models in the thematic disciplines have been almost always the result of the conventional ‘model construction In many cases, these models are simple, discipline-centered, and unable to address enough real-world complexities to be uscful The expansion modeling is especially well suited to widen these models? scope and grip on reality, since it routinizes their extension to encompass sub- stantively relevant contexts, thus increasing the real-world complexities that they can handle, Also, the expansion modeling can build bridges across disciplines by combining models born across disciplinary boundaries. These themes are worth