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Small Area Shrinkage Estimation

The need for small area estimates is increasingly felt in both the public and private sectors in order to formulate their strategic plans. It is now widely recognized that direct small area survey estimates are highly unreliable owing to large standard errors and coefficients of variation. The reason behind this is that a survey is usually designed to achieve a specified level of accuracy at a higher level of geography than that of small areas. Lack of additional resources makes it almost imperative to use the same data to produce small area estimates. For example, if a survey is designed to estimate per capita income for a state, the same survey data need to be used to produce similar estimates for counties, subcounties and census divisions within that state. Thus, by necessity, small area estimation needs explicit, or at least implicit, use of models to link these areas. Improved small area estimates are found by "borrowing strength" from similar neighboring areas.