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Sae: An R Package For Small Area Estimation

The R package sae provides functions for small area estimation using several area-level and unit-level models. It implements small area estimation methods for the Fay-Herriot model, extended Fay-Herriot models accounting for spatial and spatio-temporal correlation, and the nested-error linear regression model. Functions are included to obtain point and mean squared error estimates of area means and nonlinear area parameters based on these models. The package also includes some basic direct and indirect estimators for comparison purposes.

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0% found this document useful (0 votes)
55 views18 pages

Sae: An R Package For Small Area Estimation

The R package sae provides functions for small area estimation using several area-level and unit-level models. It implements small area estimation methods for the Fay-Herriot model, extended Fay-Herriot models accounting for spatial and spatio-temporal correlation, and the nested-error linear regression model. Functions are included to obtain point and mean squared error estimates of area means and nonlinear area parameters based on these models. The package also includes some basic direct and indirect estimators for comparison purposes.

Uploaded by

Gregorio Albán
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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C ONTRIBUTED R ESEARCH A RTICLES 81

sae: An R Package for Small Area


Estimation
by Isabel Molina and Yolanda Marhuenda

Abstract We describe the R package sae for small area estimation. This package can be used to
obtain model-based estimates for small areas based on a variety of models at the area and unit levels,
along with basic direct and indirect estimates. Mean squared errors are estimated by analytical
approximations in simple models and applying bootstrap procedures in more complex models. We
describe the package functions and show how to use them through examples.

The R package at a glance


The R package sae implements small area estimation methods under the following area-level models:
• Fay-Herriot model (including common fitting methods);
• extended Fay-Herriot model that accounts for spatial correlation;
• extended Fay-Herriot model allowing for spatio-temporal correlation.
The package also includes small area estimation methods based on the basic unit level model called
the nested-error linear regression model. The available estimation methods under this model are:
• Empirical best linear unbiased predictors (EBLUPs) of area means under the nested-error linear
regression model for the target variable.
• Empirical Best/Bayes (EB) estimates of general nonlinear area parameters under the nested-error
linear regression model for Box-Cox or power transformations of the target variable.
Methods for estimation of the corresponding uncertainty measures of the small area estimators
obtained from the above models are also included. Additionally, the package includes the following
basic direct and indirect estimators
• Direct Horvitz-Thompson estimators of small area means under general sampling designs;
• Post-stratified synthetic estimator;
• Composite estimator.
This paper describes the above model-based small area estimation techniques and illustrates the use
of the corresponding functions through suitable examples. For a description of the direct and basic
indirect estimators included in the package and a detailed description of all implemented methodology,
see http://CRAN.R-project.org/package=sae.

Introduction
The growing demand for more timely and detailed information, together with the high cost of
interviews often leads to an extensive exploitation of survey data. Indeed, many times survey data are
used to produce estimates in smaller domains or areas than those for which the survey was originally
planned. For an area with a small sample size, a direct estimator, based only on the sample data
coming from that area, might be very unreliable. This sample size limitation prevents the production of
statistical figures at the requested level and therefore restricts the availability of statistical information
for the public or the particular user. In contrast, an indirect estimator for an area also uses external
data from other areas so as to increase efficiency by increasing the effective sample size. Among
indirect estimators, we find those based on explicit regression models, called model-based estimators.
These estimators are based on assuming a relation between the target variable and some explanatory
variables that is constant across areas. The common model parameters are estimated using the whole
bunch of sample data, which often leads to small area estimators with appreciably better efficiency
than direct estimators as long as model assumptions hold. Thus, these techniques provide statistical
figures at a very disaggregated level without increasing the area-specific sample sizes and therefore
without increasing the survey cost. The small area estimation (SAE) methods included in the R package
sae have applications in many different fields such as official statistics, agriculture, ecology, medicine
and engineering. For a comprehensive account of SAE techniques, see Rao (2003).
The R package sae is mainly designed for model-based small area estimation. Nevertheless, simple
direct and indirect estimators are included for didactic purposes and to allow the user to do cross

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comparisons between the very simple indirect methods and the more advanced model-based methods.
Model-based point estimators can be supplemented with their corresponding estimated mean squared
errors (MSEs), which are computed using analytical approximations in some cases and bootstrap
procedures in other cases.
Area level models are used to obtain small area estimators when auxiliary data are available only
as area aggregates. The basic area level model is the Fay-Herriot (FH) model (Fay and Herriot, 1979).
Small area estimates based on this model and analytical MSE estimates can be obtained using the
functions eblupFH() and mseFH() respectively.
An extension of the basic FH model to the case of (unexplained) spatial correlation among data
from neighboring areas is the spatial Fay-Herriot (SFH) model. The function eblupSFH considers the
SFH model in which area effects are assumed to follow a simultaneous autoregressive process of
order one or SAR(1) process. Small area estimates supplemented with analytical MSE estimates can
be obtained using the function mseSFH(). Alternatively, parametric and non-parametric bootstrap
MSE estimates for the small area estimators obtained from the SFH model are given by the functions
pbmseSFH() and npbmseSFH() respectively.
A spatio-temporal Fay-Herriot (STFH) model can be used when data from several periods of
time are available and there is also spatial correlation. Apart from the area effects following a SAR(1)
process, the STFH model considered by function eblupSTFH() includes time effects nested within
areas, following for each domain an i.i.d. autorregresive process of order 1 or AR(1). The function
pbmseSTFH() gives small area estimates and parametric bootstrap MSE estimates.
When auxiliary information is available at the unit level, the basic small area estimators are those
based on the nested error linear regression model of Battese et al. (1988), called hereafter BHF model.
Function eblupBHF() gives estimates of small area means based on BHF model. Parametric bootstrap
MSE estimates are obtained calling function pbmseBHF().
General small area parameters obtained as a nonlinear function of the response variable in the
model, such as income-based poverty indicators, can be estimated under BHF model using function
ebBHF(). Function pbmseebBHF() gives the corresponding parametric bootstrap MSE estimates.
The paper is structured as follows. First, we discuss the differences between design and model
based inference and introduce the notation used throughout the paper. Then, we describe one by one
the model-based SAE methods implemented in the package. For each method, we briefly describe the
theory behind and the use of the functions, including suitable examples. Finally, we summarize other
existing software for small area estimation.

Design versus model-based inference


In survey sampling, the population is a finite collection of distinguishable and countable units. The
measurements of the target variable in the population units are assumed to be non-stochastic and the
aim is to estimate characteristics of the population, i.e., functions of the population measurements of
the study variable in the population units, which are consequently non-stochastic as well. A sample
is simply a collection of population units and inference is typically carried out under the probability
distribution induced by the random mechanism used to draw the sample, i.e., the sampling design.
Thus, desirable properties of estimators such as unbiasedness are established in terms of averages
over all possible samples.
In model-based inference, the term population refers simply to a random variable and, in the
simplest case, the sample is a collection of independent variables distributed identically as the original
random variable. The parameters of interest are characteristics of the probability distribution of the
original random variable such as moments, which are assumed to be fixed under the frequentist setup.
In small area estimation, the subpopulations of interest are called indistinctly areas or domains.
These areas are assumed to be finite although they are typically large. However, due to the lack of
sample data within those areas, models are needed to link all areas through some common parameters
so as to “borrow strength" from related areas and then to improve efficiency as long as model
assumptions hold. Thus, model-based small area methods combine the finite population setup with
the randomness of the measurements of the variable of interest in the population units, which are
assumed to follow a regression model. Consequently, target quantities, defined as functions of the
population measurements, are also random.

Notation
As mentioned above, here we consider a large but finite population U. This population is assumed
to be partitioned into D mutually exclusive and exhaustive domains or areas U1 , . . . , UD of sizes

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N1 , . . . , ND . Let Ydj be the measurement of the variable of interest for individual j within area d and
let yd = (Yd1 , . . . , YdNd )> be the vector of measurements for area d. The target parameters have the
form δd = h(yd ), d = 1, . . . , D, for a known measurable function h. Particular target parameters of
common interest are the domain means
Nd
δd = Ȳd = Nd−1 ∑ Ydj , d = 1, . . . , D.
j =1

Estimation of the target parameters is based on a sample s drawn from the population U. Let sd be the
subsample from domain Ud of size nd , d = 1, . . . , D, where n = ∑dD=1 nd is the total sample size. We
will denote by rd = Ud − sd the sample complement from domain d of size Nd − nd , for d = 1, . . . , D.
Estimation of the area parameters δd = h(yd ), d = 1, . . . , D, can be done using area or unit-level
models. In area level models, the auxiliary information comes in the form of aggregated values of
some explanatory variables at the domains, typically true area means. In contrast, unit-level models
make use of the individual values of the explanatory variables.
The package sae contains functions that provide small area estimators under both types of mod-
els. Functions for point estimation based on area level models include eblupFH(), eblupSFH() and
eblupSTFH(). Functions for unit-level data are eblupBHF() and ebBHF(). Functions for estimation of
the usual accuracy measures are also included. Below we describe the assumed models and the use of
these functions, including examples of use. The package sae depends on packages nlme (Pinheiro
et al., 2013) and MASS (Venables and Ripley, 2002). The examples of these functions have been run
under R version x64 3.1.3.

EBLUPs based on a FH model


A basic area level model is the Fay-Herriot (FH) model, introduced by Fay and Herriot (1979) to obtain
small area estimators of median income in U.S. small places. This model is defined in two stages.
Let δ̂dDIR be a direct estimator of δd . In the first stage, we assume that, given δd , δ̂dDIR is an unbiased
estimator of δd ; more concretely,

ind
δ̂dDIR = δd + ed , ed ∼ N (0, ψd ), d = 1, . . . , D, (1)

where ψd is the sampling variance of the direct estimator δ̂dDIR given δd , assumed to be known for
all d = 1, . . . , D. In a second stage, we assume that the area parameters δd are linearly related with a
p-vector xd of area level auxiliary variables as follows,

ind
δd = x>
d β + ud , ud ∼ N (0, A), d = 1, . . . , D. (2)

Model (2) is called linking model because it relates all areas through the common regression coefficients
β, allowing us to borrow strength from all areas. Model (1) is called sampling model because it
represents the uncertainty due to the fact that δd is unobservable and, instead of δd , we observe its
direct estimator based on the sample, δ̂dDIR . Combining the two model components, we obtain the
linear mixed model
ind
δ̂dDIR = x>
d β + ud + ed , ed ∼ N (0, ψd ), d = 1, . . . , D, (3)

where
ind
ud ∼ N (0, A), d = 1, . . . , D,
and ud is independent of ed for all d. Normality is not needed for point estimation but it is required for
the estimation of the mean squared error.
Henderson (1975) obtained the best linear unbiased predictor (BLUP) of a mixed effect, i.e., a linear
combination of the fixed and random effects β and u = (u1 , . . . , u D ) T . The BLUP of δd under FH
model (3) is given by
δ̃dBLUP = x> d β̃ ( A ) + ũd ( A ), (4)
 
DIR >
where ũd ( A) = γd ( A) δ̂d − xd β̃( A) is the predicted random effect, γd ( A) = A/( A + ψd ) ∈
h i −1
(0, 1) and β̃( A) = ∑dD=1 ( A + ψd )−1 xd xdT −1
∑dD=1 ( A + ψd ) xd δ̂dDIR is the weighted least squares
estimator of β.
The BLUP assumes that A is known. The empirical BLUP (EBLUP) δ̂dEBLUP is obtained by replacing
A in the BLUP (4) by a consistent estimator Â. The EBLUP can be expressed as a combination of the

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direct and the regression-synthetic estimators as follows,

δ̂dEBLUP = γ̂d δ̂dDIR + (1 − γ̂d )x>


d β̂, (5)

where γ̂d = γd ( Â) = Â/( Â + ψd ) and β̂ = β̃( Â). In (5), we can see that when the direct estimator
is reliable, i.e. ψd is small as compared with Â, then the EBLUP comes closer to the direct estimator.
In contrast, when the direct estimator is unreliable, i.e. ψd is large as compared with Â, then the
EBLUP gets closer to the regression-synthetic estimator. Thus, the EBLUP makes use of the regression
assumption only for areas where borrowing strength is needed.
Common model fitting methods delivering consistent estimators for A are Fay-Herriot (FH)
method (Fay and Herriot, 1979), maximum likelihood (ML) and restricted ML (REML), where the
latter accounts for the degrees of freedom due to estimating β and therefore has a reduced finite
sample bias. If the estimator  is an even and translation invariant function of the vector of direct
estimates, which holds for FH, ML and REML fitting methods, then under symmetric distributions of
random effects and errors, the EBLUP δ̂dEBLUP = δ̃dBLUP ( Â) remains unbiased (Kackar and Harville,
1984).
Models are typically compared based on goodness-of-fit measures such as the log-likelihood, the
Akaike Information Criterion (AIC) and the Bayesian Information Criterion (BIC). Under FH model
(3), the log-likelihood is given by
" #
D D 2
1 
`( A, β) = − D log(2π ) + ∑ log( A + ψd ) + ∑ ( A + ψd )−1 δ̂dDIR − x>
d β .
2 d =1 d =1

AIC and BIC are respectively obtained as

AIC = −2`( A, β) + 2( p + 1), BIC = −2`( A, β) + ( p + 1) log( D ).

Analogous formulas are applied in the remaining functions dealing with extensions of FH model,
but using the corresponding log-likelihood. For functions based on BHF model, goodness-of-fit
measures are those delivered by function lme() of the package nlme. A point estimate δ̂d of δd must be
supplemented with an uncertainty measure; typically, the mean squared error MSE(δ̂d ) = E(δ̂d − δd )2 .
The MSE of the EBLUP under the basic FH model (3) can be estimated analytically using the large
sample approximation obtained by Prasad and Rao (1990) for a moments estimator of A. For REML
and ML fitting methods, the analytical MSE estimates were firstly obtained by Datta and Lahiri (2000)
and for FH fitting method, by Datta et al. (2005).
Functions eblupFH() and mseFH() calculate respectively small area estimates and corresponding
analytical MSE estimates under FH model. The calls to these functions are
eblupFH(formula, vardir, method = "REML", MAXITER = 100, PRECISION = 0.0001, data)
mseFH(formula, vardir, method = "REML", MAXITER = 100, PRECISION = 0.0001, data)
Both functions require specification of the fixed part of FH model (3) through a usual R formula
object, placing the vector of direct estimates on the left-hand side of formula and the desired area
level covariates separated by "+" on the right-hand side. The formula automatically adds an intercept
by default. These functions also require estimates of the sampling variances of the direct estimators
in vardir. The direct estimates (left-hand side of formula) and their estimated variances (vardir)
required in the area level functions can be previously obtained using the function direct() included
in the package sae or using the R packages survey (Lumley, 2004, 2012) or sampling (Tillé and Matei,
2012) when the sampling design information is available. The default fitting method (method) is REML
and it can be changed to FH and ML. Default maximum number of iterations (MAXITER) and convergence
tolerance criteria (PRECISION) of the Fisher-scoring algorithm can be also modified. The last argument,
data, can be used to specify a data object that contains the variables in formula and vardir as columns.
The functions do not allow NA values because in area level models we do not consider areas with zero
sample size.
The function eblupFH() returns a list with two objects: eblup, a vector with the EBLUPs for the
areas, and fit, which includes all interesting output from the fitting process. The function mseFH()
gives also the EBLUPs, but supplemented with their analytical MSE estimates. This function delivers
a list with two objects: est, a list containing the EBLUPs and the results of the model fitting, and mse,
a vector with the estimated MSEs.

Example 1. Average expenditure on fresh milk

We consider the data set milk on fresh milk expenditure, used originally by Arora and Lahiri (1997)
and later by You and Chapman (2006). This data set contains 43 observations on the following

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six variables: SmallArea containing the areas of inferential interest, ni with the area sample sizes,
yi with the average expenditure on fresh milk for the year 1989 (direct estimates), SD with the
estimated standard deviations of direct estimators, CV with the estimated coefficients of variation
of direct estimators and, finally, MajorArea containing major areas created by You and Chapman
(2006). We will obtain EBLUPs δ̂dEBLUP of average area expenditure on fresh milk for 1989, δd , together
with analytical MSE estimates mse(δ̂dEBLUP ), based on FH model with fixed effects for MajorArea
categories. We will qcalculate the coefficients of variation (CVs) in terms of the MSE estimates as
cv(δ̂dEBLUP ) = 100 mse(δ̂dEBLUP )/δ̂dEBLUP . We will analyze the gain in efficiency of the EBLUPs
δ̂dEBLUP in comparison with direct estimators δ̂dDIR based on the CVs.

> data("milk")
> attach(milk)
> FH <- mseFH(yi ~ as.factor(MajorArea), SD^2)
> cv.FH <- 100 * sqrt(FH$mse) / FH$est$eblup
> results <- data.frame(Area = SmallArea, SampleSize = ni, DIR = yi,
+ cv.DIR = 100 * CV, eblup.FH = FH$est$eblup, cv.FH)
> detach(milk)

EBLUPs and direct area estimates of average expenditure are plotted for each small area in Figure 1
left. CVs of these estimators are plotted in Figure 1 right. In both plots, small areas have been sorted
by decreasing sample size. The following R commands are run to obtain Figures 1 left and right:
> results <- results[order(results$SampleSize, decreasing = TRUE), ]
> # Figure 1 left
> plot(results$DIR, type = "n", ylab = "Estimate", ylim = c(0.4, 1.6),
+ xlab = "area (sorted by decreasing sample size)", cex.axis = 1.5,
+ cex.lab = 1.5)
> points(results$DIR, type = "b", col = 1, lwd = 2, pch = 1, lty = 1)
> points(results$eblup.FH, type = "b", col = 4, lwd = 2, pch = 4, lty = 2)
> legend("top", legend = c("Direct", "EBLUP FH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), lty = c(1, 2), cex = 1.3)
> plot(results$cv.DIR, type = "n", ylab = "CV", ylim = c(5, 40),
+ xlab = "area (sorted by decreasing sample size)", cex.axis = 1.5,
+ cex.lab = 1.5)
> points(results$cv.DIR, type = "b", col = 1, lwd = 2, pch = 1, lty = 1)
> points(results$cv.FH, type = "b", col = 4, lwd = 2, pch = 4, lty = 2)
> legend("top", legend = c("Direct", "EBLUP FH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), lty = c(1, 2), cex = 1.3)
Observe in Figure 1 left that EBLUPs track direct estimators but are slightly less volatile. See also
that CVs of EBLUPs are smaller than those of direct estimators for all areas in Figure 1 right. In fact,
national statistical institutes are committed to publish statistical figures with a minimum level of
reliability. A generally accepted rule is that an estimate with CV over 20% cannot be published. In this
application, direct estimators have CVs over 20% for several areas, whereas the CVs of the EBLUPs
do not exceed this limit for any of the areas. Moreover, the gains in efficiency of the EBLUPs tend to
be larger for areas with smaller sample sizes (those on the right-hand side). Thus, in this example
EBLUPs based on FH model seem more reliable than direct estimators.

EBLUPs based on a spatial FH model


In many practical applications, data from domains that are close to each other are correlated. One
way to account for this correlation is by considering a spatial Fay-Herriot (SFH) model obtained by
assuming that, in FH model given in (3), the vector u = (u1 , . . . , u D )> of domain effects follows a first
order simultaneous autoregressive, SAR(1), process, that is,

u = ρ1 Wu + e, e ∼ N (0 D , σ12 I D ), (6)

where 0k denotes a (column) vector of zeros of size k and Ik is the k × k identity matrix. In (6),
ρ1 ∈ (−1, 1) is an unknown autorregression parameter and W is a D × D proximity matrix obtained
by a row-wise standardization of an initial matrix with zeros on the diagonal and the remaining entries
equal to one when the row domain is neighbor of the column domain, see e.g., Anselin (1988) and
Cressie (1993).
The EBLUP under the SFH model (3) with area effects following (6) was obtained by Petrucci
and Salvati (2006). The vector of EBLUPs for all areas are obtained with the function eblupSFH().

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1.6

40
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area (sorted by decreasing sample size) area (sorted by decreasing sample size)

Figure 1: EBLUPs based on FH model and direct area estimates of average expenditure on fresh milk
for each area (left). CVs of EBLUPs and direct estimators for each area (right). Areas are sorted by
decreasing sample size.

Concerning MSE, Singh et al. (2005) gave an analytical estimator when model parameters are esti-
mated either by ML or REML fitting methods. These analytical MSE estimates are implemented in
function mseSFH(). Under complex models such as the SFH model, bootstrap methods are convenient
alternatives because of their conceptual simplicity. Molina et al. (2009) provided parametric and
non-parametric bootstrap procedures for estimation of the MSE under the SFH model. They can be
obtained respectively with functions pbmseSFH() and npbmseSFH(). The calls to the functions related
to the SFH model are:
eblupSFH(formula, vardir, proxmat, method = "REML", MAXITER = 100, PRECISION = 0.0001,
data)
mseSFH(formula, vardir, proxmat, method = "REML", MAXITER = 100, PRECISION = 0.0001,
data)
pbmseSFH(formula, vardir, proxmat, B = 100, method = "REML", MAXITER = 100,
PRECISION = 0.0001, data)
npbmseSFH(formula, vardir, proxmat, B = 100, method = "REML", MAXITER = 100,
PRECISION = 0.0001, data)
Some of the arguments are exactly the same as in the functions for FH model. The output has
also the same structure. Additional arguments are a proximity matrix (proxmat), whose elements are
proximities or neighborhoods of the areas, i.e., a matrix with elements in [0,1], zeros on the diagonal
and rows adding up to 1. Functions using bootstrap methods also require to specify the number of
bootstrap replicates B. In order to achieve stable MSE estimates, a large number of bootstrap replicates
B is required. By default B is set to 100 to save computing time but we strongly recommend to set B
to values over 200. Bootstrap functions are based on random number generation and the seed for
random number generation can be fixed previously using set.seed(). The fitting method (method)
can be chosen between REML (default value) or ML.

Example 2. Mean surface area for grape production

We consider now synthetic data on grape production for 274 municipalities in the region of Tuscany
(Italy). The data set grapes contains the following variables: grapehect, direct estimators of the mean
surface area (in hectares) used for production of grape for each municipality, area, agrarian surface
area (in hectares) used for production, workdays, average number of working days in the reference year
and var, sampling variance of the direct estimators for each municipality. We calculate spatial EBLUPs
of mean surface area used for grape production, based on a spatial FH model with area and workdays
as auxiliary variables, together with analytical MSE estimates. The data set grapesprox contains the
proximity matrix representing the neighborhood structure of the municipalities in Tuscany.
We first load the two data sets, grapes and grapesprox. Then we call the function mseSFH()
that returns small area estimates and analytical MSE estimates, calculate CVs and finally collect the
obtained results in a data frame:
> data("grapes")
> data("grapesprox")
> SFH <- mseSFH(grapehect ~ area + workdays - 1, var, grapesprox, data = grapes)

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400

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● Direct EBLUP SFH ● Direct EBLUP SFH


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Estimate



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area (sorted by increasing CVs of direct estimators) area (sorted by increasing CVs of direct estimators)

Figure 2: EBLUPs based on the SFH model and direct estimates of mean surface area used for
production of grape for each municipality (left). CVs of EBLUPs and direct estimators for each
municipality (right). Municipalities are sorted by increasing CVs of direct estimators.

> cv.SFH <- 100 * sqrt(SFH$mse) / SFH$est$eblup


> results <- data.frame(DIR = grapes$grapehect,
+ cv.DIR = 100 * abs(sqrt(grapes$var) / grapes$grapehect),
+ eblup.SFH = SFH$est$eblup, cv.SFH)
Figure 2 left shows the EBLUPs based on the SFH model and the direct estimates of mean surface
area used for production of grape for each municipality. Figure 2 right shows the CVs of EBLUPs and
direct estimators for each municipality, where municipalities are sorted by increasing CVs of direct
estimators. Observe that the EBLUPs are again more stable and that CVs of EBLUPs are smaller for
most municipalities, and the CV gains are remarkable for the municipalities in which direct estimators
are very inefficient.
The following R commands are run to obtain Figures 2 left and right:

> # Sort results by increasing CV of direct estimators


> results <- results[order(results$cv.DIR), ]
> # Figure 2 left
> plot(results$DIR, type = "n", ylab = "Estimate", ylim = c(0, 400),
+ xlab = "area (sorted by increasing CVs of direct estimators)", cex.axis = 1.5,
+ cex.lab = 1.5)
> points(results$DIR, type = "p", col = 1, lwd = 2, pch = 1)
> points(results$eblup.SFH, type = "p", col = 4, lwd = 2, pch = 4)
> legend("top", legend = c("Direct", "EBLUP SFH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), cex = 1.3)
> # Figure 2 right
> plot(results$cv.DIR, type = "n", ylab = "CV", ylim = c(0, 400),
+ xlab = "area (sorted by increasing CVs of direct estimators)", cex.axis = 1.5,
+ cex.lab = 1.5)
> points(results$cv.DIR, type = "p", col = 1, lwd = 2, pch = 1)
> points(results$cv.SFH, type = "p", col = 4, lwd = 2, pch = 4)
> legend("top", legend = c("Direct", "EBLUP SFH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), cex = 1.3)

EBLUPs based on a spatio-temporal FH model


If area level data are available for several periods of time and for each area, the SFH model can be
further extended to make use of this additional information. Consider that data are available for T
time periods within each domain. Let δdt be the target parameter in domain d at time period t and let
DIR be a direct estimate of δ . The STFH model proposed by Marhuenda et al. (2013) extends the
δ̂dt dt
SFH model by including random effects for the time periods nested within domains as follows

ind
DIR
δ̂dt = x>
d β + ud + vdt + edt , edt ∼ N (0, ψd ), t = 1, . . . , T, d = 1, . . . , D.

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Here, the vector u = (u1 , . . . , u D )> of area effects follows the SAR(1) process given in (6) and, for
each area d, the vectors vd = (vd1 , . . . , vdT )> are i.i.d. following the first order autoregressive, AR(1),
process
vdt = ρ2 vd,t−1 + e2dt , e2dt ∼ N (0, σ22 ).
Much more complex models than the AR(1) process are not typically considered in small area esti-
mation because in practical applications the number of available time periods T is typically small.
Moving average (MA) processes are not yet considered in the sae package.
Marhuenda et al. (2013) give the EBLUP of δ̂dt under the STFH model and provide a parametric
bootstrap procedure for the estimation of the MSE of the EBLUP. EBLUPs for all areas and parametric
bootstrap estimates can be obtained calling functions eblupSTFH() and pbmseSTFH() respectively. The
calls to these functions are:

eblupSTFH(formula, D, T, vardir, proxmat, model = "ST", MAXITER = 100,


PRECISION = 0.0001, data)
pbmseSTFH(formula, D, T, vardir, proxmat, B = 100, model = "ST", MAXITER = 100,
PRECISION = 0.0001, data)
The arguments of these functions are the same as for the SFH model with the exception that
argument method is not used because currently only the REML fitting method has been implemented
for the STFH functions. Additionally, we must specify the number of areas D and the number of
periods of time T for each area. Note that these functions can be used only when data are available for
all the T periods of time within each of the D domains. Data in formula and vardir must be sorted
in ascending order by period of time for each domain. The argument model can be chosen between
the default value ST (AR(1) time-effects within each domain) or value S (uncorrelated time effects
within each domain). For the bootstrap method, again we recommend to take at least B=200 bootstrap
replicates. Again, the output of these functions has the same structure as that of functions for FH
model.

Example 3. EBLUPs based on a spatio-temporal FH model

In this example, we use the data set spacetime, which contains synthetic area level data for T = 3
periods of time for each of D = 11 areas. The data set contains the following variables: Area, area
code, Time, period of time, X1 and X2, the auxiliary variables for each area and period of time, Y,
direct estimates for each area and period of time and Var, sampling variances of the direct estimators.
We calculate EBLUPs of the means for each area and period of time, based on the STFH model
with proximity matrix given in the data set spacetimeprox, together with parametric bootstrap MSE
estimates. We show the results only for the last period of time.

> data("spacetime")
> data("spacetimeprox")
> D <- nrow(spacetimeprox) # number of areas
> T <- length(unique(spacetime$Time)) # number of time periods
> set.seed(123)
> STFH <- pbmseSTFH(Y ~ X1 + X2, D, T, vardir = Var, spacetimeprox, data = spacetime)

Bootstrap procedure with B = 100 iterations starts.


b = 1
...
b = 100

> # Compute CVs for the EBLUPs based on the STFH model and for the direct estimators
> cv.STFH <- 100 * sqrt(STFH$mse) / STFH$est$eblup
> cv.DIR <- 100 * sqrt(spacetime$Var) / spacetime$Y
> results <- data.frame(Area = spacetime$Area, Time = spacetime$Time,
+ DIR = spacetime$Y, eblup.STFH = STFH$est$eblup,
+ cv.DIR, cv.STFH)
> results.lasttime <- results[results$Time == 3, ]
> print(results.lasttime, row.names = FALSE)

Area Time DIR eblup.STFH cv.DIR cv.STFH


2 3 0.261484 0.27343181 10.944523 7.653997
3 3 0.175358 0.17722992 7.777336 7.026746
8 3 0.096230 0.09653879 6.059391 5.567674
12 3 0.122160 0.13740348 21.904205 14.798918

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25

● Direct EBLUP STFH ● Direct EBLUP STFH

0.4

20
0.3 ●
Estimate

CV

15

0.2

● ●

● ●

10

● ●
0.1

● ●


8 3 13 46 45 2 16 25 43 12 17 8 3 13 46 45 2 16 25 43 12 17
area (time=3) area (time=3)

Figure 3: EBLUPs of each area mean at last period of time, based on the STFH model and direct
estimates (left). CVs of the two estimators for each area (right). Areas are sorted by increasing CVs of
direct estimators.

13 3 0.294176 0.29129477 8.812059 6.657347


16 3 0.412106 0.31887378 13.584403 9.224897
17 3 0.057924 0.06912566 25.195980 20.314774
25 3 0.209146 0.17377084 15.411972 12.225196
43 3 0.148671 0.14398844 15.788815 14.700855
45 3 0.234361 0.22810227 9.550663 8.303303
46 3 0.137869 0.14354272 8.853735 8.355827

Figure 3 left shows the EBLUPs based on the STFH model together with the direct estimates for
each area at the last time point, with areas sorted by increasing CVs of direct estimators. Figure 3 right
shows the corresponding CVs. In this example, we can see that even with a very small number of
areas D = 11 and periods of time T = 3 to borrow strength from, the EBLUPs follow closely direct
estimates but are still slightly more stable and the CVs of EBLUPs are smaller for all areas.
The following R commands are executed to obtain Figures 3 left and right:

> results.lasttime <- results.lasttime[order(results.lasttime$cv.DIR), ]


> # Figure 3 left
> plot(results.lasttime$DIR, type = "n", xlab = "area (time=3)", ylab = "Estimate",
+ ylim = c(0.05, 0.45), cex.axis = 1.5, cex.lab = 1.5, xaxt = "n")
> axis(1, 1:11, results.lasttime$Area, cex.axis = 1.5)
> points(results.lasttime$DIR, type = "b", col = 1, lwd = 2, pch = 1, lty = 1)
> points(results.lasttime$eblup.STFH, type = "b", col = 4, lwd = 2, pch = 4, lty = 2)
> legend("top", legend = c("Direct", "EBLUP STFH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), lty = c(1, 2), cex = 1.3)
> # Figure 3 right
> plot(results.lasttime$cv.DIR, type = "n", xlab = "area (time=3)", ylab = "CV",
+ cex.axis = 1.5, cex.lab = 1.5, xaxt = "n")
> axis(1, 1:11, results.lasttime$Area, cex.axis = 1.5)
> points(results.lasttime$cv.DIR, type = "b", col = 1, lwd = 2, pch = 1, lty = 1)
> points(results.lasttime$cv.STFH, type = "b", col = 4, lwd = 2, pch = 4, lty = 2)
> legend("top", legend = c("Direct", "EBLUP STFH"), ncol = 2, col = c(1, 4), lwd = 2,
+ pch = c(1, 4), lty = c(1, 2), cex = 1.3)

EBLUPs based on BHF model


When auxiliary data are available at the unit level, unit-level models are likely to provide more efficient
small area estimators than area level models, because they make use of the much richer information
offered by microdata. Let the data for unit j in area d be (Ydj , x>dj ), where xdj is the vector with the
values of p auxiliary variables. The basic unit-level model is the nested error model introduced by
Battese et al. (1988), given by

iid iid
Ydj = x>
dj β + ud + edj , ud ∼ N (0, σu2 ), edj ∼ N (0, σe2 ). (7)

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Here, ud are area effects and edj are individual errors, where ud and edj are assumed to be independent
with corresponding variances σu2 and σe2 , regarded as unknown parameters. The model defined in (7)
is assumed for all units in the population and we consider that sample selection bias is absent and
therefore sample units follow exactly the same model.
For the estimation of a linear parameter δd = a>
d yd under BHF model, Royall (1970) derived the
BLUP. As a particular case, for the small area mean δd = Ȳd = Nd−1 ∑ N d
j=1 Ydj , the BLUP is given by
 
1 
Nd j∑
˜
ȲdBLUP
= Ydj + ∑ Ỹdj  ,
∈s j ∈r
d d

where Ỹdj = x> >


dj β̃ + ũd is the BLUP of Ydj . Here, ũd is the BLUP of ud , given by ũd = γd ( ȳds − x̄ds β̃ ),
with ȳds = n− 1 −1 2 2 2
d ∑ j∈sd Ydj , x̄ds = nd ∑ j∈sd xdj and γd = σu / ( σu + σe /nd ). Again, the BLUP of Ȳd
2 2 >
depends on the vector θ = (σu , σe ) of unknown variance components. In practice, we calculate
the EBLUP of Ȳd by replacing θ = (σu2 , σe2 )> by a consistent estimator θ̂ = (σ̂u2 , σ̂e2 )> . Usual fitting
methods for BHF model are also ML and REML. Let β̂ and ûd = γ̂d (ȳds − x̄> ds β̂ ) be the results of
replacing θ by θ̂ in the formulas of β̃ and ũd , where γ̂d = σ̂u2 /(σ̂u2 + σ̂e2 /nd ). Then the EBLUP of Ȳd can
be alternatively expressed as
>
Ȳˆ dEBLUP = f d ȳds + (X̄d − f d x̄ds ) β̂ + (1 − f d )ûd , (8)

where f d = nd /Nd is the domain sampling fraction. Equation (8) shows that, for calculation of the
EBLUP of a small area mean, apart from sample observations, we need the true totals or means X̄d of
the auxiliary variables in the population and the populations sizes Nd of the areas.
For MSE estimation of the EBLUP given in (8) based on BHF model, González-Manteiga et al.
(2008) proposed a parametric bootstrap method for finite populations. EBLUPs of the area means
based on BHF model given in (7) and parametric bootstrap MSE estimates can be obtained from the
functions eblupBHF() and pbmseBHF() respectively. The calls to these functions are:
eblupBHF(formula, dom, selectdom, meanxpop, popnsize, method = "REML", data)
pbmseBHF(formula, dom, selectdom, meanxpop, popnsize, B = 200, method = "REML", data)
The fixed part of the model needs to be specified through the argument formula and the variable
(vector or factor) identifying the domains must be specified in the argument dom. The variables
in formula and dom can also be chosen from a data set specified in the argument data. These two
functions allow selection of a subset of domains where we want to estimate by specifying the vector of
selected domains in selectdom, which by default includes the list of all unique domains in dom. The
population means of the auxiliary variables for the domains (meanxpop) and the population sizes of
the domains (popnsize) are required arguments. REML (default) or ML fitting methods can be specified
in argument method. The output of these functions has the same structure as that of FH functions. In
these functions, the observations with NA values in formula or dom are ignored. These functions deliver
estimates for areas with zero sample size, that is, for areas specified in selectdom without observations
in formula, as long as these areas have elements in meanxpop. In this case, the function delivers the
synthetic estimator Ȳˆ dEBLUP = X̄>
d β̂.

Example 4. County means of corn crop hectares

We consider data used in Battese et al. (1988) on corn and soy beans production in 12 Iowa counties,
contained in the two data sets cornsoybean and cornsoybeanmeans. Data come from two different
sources: the 1978 June Enumerative Survey of the U.S. Department of Agriculture and images of land
observatory satellites (LANDSAT) during the 1978 growing season.
In these data sets, counties are the domains and sample segments are the units. The data set
cornsoybean contains the values of the following variables for each sample segment within each
county: County, county code, CornHec, reported hectares of corn from the survey in each sample
segment within each county, SoyBeansHec, reported hectares of soy beans from the survey in each
sample segment within county, CornPix, number of pixels of corn from satellite data, and SoyBeansPix,
number of pixels of soy beans from satellite data.
In this example, we will calculate EBLUPs of county means of corn crop hectares based on
BHF model, considering as auxiliary variables the number of pixels of corn and soy beans from the
LANDSAT satellite images. See from (8) that the domain (county) means of the auxiliary variables X̄d
and the population sizes Nd of the counties are required to obtain the EBLUPs based on BHF model.
These county means are included in the data set cornsoybeanmeans. Concretely, this data set contains:
SampSegments, number of sample segments in the county (sample size), PopnSegments, number of

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population segments in the county (population size), MeanCornPixPerSeg, county mean of the number
of corn pixels per segment, and MeanSoyBeansPixPerSeg, county mean of the number of soy beans
pixels per segment (county means of auxiliary variables).
First, we create the data frame Xmean containing the true county means of the auxiliary vari-
ables given in the columns named MeanCornPixPerSeg and MeanSoyBeansPixPerSeg from the data set
cornsoybeanmeans. We also create the data frame Popn containing the county population sizes. In
these two data frames, the first column must contain the domain (or county) codes. Although here
counties in Xmean and Popn are sorted exactly in the same way, the functions for BHF model handle
correctly the case in which the domains (whose codes are listed in the first column of both Xmean and
Popn) are arranged differently:
> data("cornsoybeanmeans")
> Xmean <- data.frame(cornsoybeanmeans[, c("CountyIndex", "MeanCornPixPerSeg",
+ "MeanSoyBeansPixPerSeg")])
> Popn <- data.frame(cornsoybeanmeans[, c("CountyIndex", "PopnSegments")])
Next, we load the data set with the unit-level data and delete observation number 33 because it is an
outlier, see Battese et al. (1988). Then we call the function pbmseBHF(), which gives the EBLUPs of the
means of corn crop area and parametric bootstrap MSE estimates, choosing B=200 bootstrap replicates.
Here, CornHec is the response variable and the auxiliary variables are CornPix and SoyBeansPix.
Note that the argument selectdom can be used to select a subset of the domains for estimation.
> data("cornsoybean")
> cornsoybean <- cornsoybean[-33, ]
> set.seed(123)
> BHF <- pbmseBHF(CornHec ~ CornPix + SoyBeansPix, dom = County, meanxpop = Xmean,
+ popnsize = Popn, B = 200, data = cornsoybean)
Bootstrap procedure with B = 200 iterations starts.
b = 1
...
b = 200
Finally, we compute CVs and construct a data frame with sample sizes, EBLUPs and CVs for each
county, called results.corn.
> cv.BHF <- 100 * sqrt(BHF$mse$mse) / BHF$est$eblup$eblup
> results <- data.frame(CountyIndex = BHF$est$eblup$domain,
+ CountyName = cornsoybeanmeans$CountyName,
+ SampleSize = BHF$est$eblup$sampsize,
+ eblup.BHF = BHF$est$eblup$eblup, cv.BHF)
> print(results, row.names = FALSE)
CountyIndex CountyName SampleSize eblup.BHF cv.BHF
1 CerroGordo 1 122.1954 8.066110
2 Hamilton 1 126.2280 7.825271
3 Worth 1 106.6638 9.333344
4 Humboldt 2 108.4222 7.598736
5 Franklin 3 144.3072 4.875002
6 Pocahontas 3 112.1586 6.020232
7 Winnebago 3 112.7801 5.951520
8 Wright 3 122.0020 5.700670
9 Webster 4 115.3438 4.808813
10 Hancock 5 124.4144 4.495448
11 Kossuth 5 106.8883 4.532518
12 Hardin 5 143.0312 3.504340
Results show great similarity with those given in Battese et al. (1988) although the model fitting
method and the MSE estimation procedure used here are different.

EB estimators of nonlinear parameters based on BHF model

Now consider that we wish to estimate a general nonlinear area parameter δd = h(yd ), where
yd = (Yd1 , . . . , YdNd )> is the vector of measurements of the response variable in the units from area
d. Rearranging the elements Ydj according to their membership to the sample sd or the sample
complement rd , we can express yd as yd = (y> > >
ds , ydr ) , where yds and ydr denote respectively the
subvectors containing the sample and out-of-sample elements. When δd = h(yd ) is nonlinear in yd ,

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considering a linear predictor like the BLUP makes no sense; instead, we consider the best predictor,
which minimizes the MSE without restrictions of linearity or unbiasedness. The best predictor is given
by Z
δ̃dB = Eydr [h(yd )|yds ] = h(yd ) f (ydr |yds )dydr , (9)

where the expectation is taken with respect to the distribution of ydr given yds , with density f (ydr |yds ).
Under BHF model for Ydj given in (7), the distribution of ydr given yds is normal with conditional
mean vector and covariance matrix depending on the unknown parameters β and θ = (σu2 , σe2 )> .
Even if this conditional distribution was completely known, the expected value in (9) would be still
intractable for complex nonlinear parameters δd = h(yd ) like some poverty indicators. For such cases,
Molina and Rao (2010) propose to estimate the unknown model parameters by consistent estimators
β̂ and θ̂ = (σ̂u2 , σ̂e2 )> such as ML or REML estimators, and then obtaining the empirical best (EB)
estimator of δd by a Monte Carlo approximation of the expected value in (9). This process is done by
(`)
first generating out-of-sample vectors ydr , ` = 1, . . . , L, for large L, from the (estimated) conditional
distribution f (ydr |yds ; β̂, θ̂). The second step consists of attaching, for each `, the sample elements
(`) (`) (`) > >
to the generated vector ydr , resulting in the full population vector (or census) yd = (y>
ds , ( ydr ) ) .
(`) (`)
With the census yd , we then calculate the target quantity h(yd ) for each ` = 1, . . . , L. Lastly, we
average the target quantity over the L simulations as

1 L
∑ h ( y d ).
(`)
δ̂dEB ≈ (10)
L `= 1

Note that the size of ydr is Nd − nd , where Nd is typically large and nd is typically small. Then,
generation of ydr might be computationally cumbersome. However, the generation of large multivari-
ate normal vectors can be avoided by exploiting the form of the conditional covariance obtained from
model (7). It is easy to see that out-of-sample vectors ydr from the desired conditional distribution
f (ydr |yds ; β̂, θ̂) can be obtained by generating only univariate variables from the following model
(`)
Ydj = x>
dj β̂ + ûd + vd + ε dj ,

vd ∼ N (0, σ̂u2 (1 − γ̂d )), ε dj ∼ N (0, σ̂e2 ), j ∈ rd , d = 1, . . . , D. (11)

In some cases, the response variable in BHF model is a one-to-one transformation of the variable
of interest, that is, Ydj = T (Odj ), where Odj are the measurements of the variable of interest in the
population units. This situation often occurs in socio-economic applications. A good example is when
Odj is a variable measuring welfare of individuals such as income, and the target parameter for each
area is a poverty indicator such as the poverty incidence, also called at-risk-of-poverty rate. The
poverty incidence is defined as the proportion of people with income Odj below the poverty line z,
that is,
1 Nd  
δd = ∑
Nd j=1
I Odj < z , d = 1, . . . , D. (12)

The distribution of incomes Odj is typically severely skewed and therefore assuming BHF model
for Odj with normally distributed random effects and errors is not realistic. Thus, we cannot obtain
EB estimates of δd based on BHF model for Odj as described above. However, a transformation
Ydj = T (Odj ), such as Ydj = log(Odj + c) often leads to (at least approximate) normality. Observe that
the target area parameter δd , if initially defined in terms of the original variables Odj , can be easily
expressed in terms of the transformed variables Ydj using the inverse transformation Odj = T −1 (Ydj ),
as
1 Nd  −1 
δd = h(yd ) = ∑
Nd j=1
I T (Ydj ) < z , d = 1, . . . , D.

Expressing the target area parameter δd in terms of the actual model responses Ydj for area d as
δd = h(yd ), we can then compute the Monte Carlo approximation of the EB estimate δ̂dEB of δd as
indicated in (10).
Suitable transformations T () leading to normality can be found within the Box-Cox or power
families. For a constant c and a power λ, the Box-Cox transformation is given by
( h i
(Odj + c)λ − 1 /λ, λ 6= 0;
Tc,λ (Odj ) =
log(Odj + c), λ = 0.

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The power family is given by



∗ (Odj + c)λ , λ 6= 0;
Tc,λ (Odj ) =
log(Odj + c), λ = 0.

The log transformation is obtained in the two families setting λ = 0. MSE estimates of the EB
estimators of δd = h(yd ) under BHF model can be obtained using the parametric bootstrap method
for finite populations introduced by González-Manteiga et al. (2008).
Function ebBHF() gives EB estimates of the area parameters δd = h(yd ), where Ydj = T (Odj ),
based on BHF model for Ydj . Function pbmseebBHF() gives EB estimates together with parametric
bootstrap MSE estimates. The calls to these functions are:

ebBHF(formula, dom, selectdom, Xnonsample, MC = 100, data, transform = "BoxCox",


lambda = 0, constant = 0, indicator)
pbmseebBHF(formula, dom, selectdom, Xnonsample, B = 100, MC = 100, data,
transform = "BoxCox", lambda = 0, constant = 0, indicator)
In the left-hand side of the formula object, we must put the vector of observations of the original
variables Odj . We can either select "Box-Cox" or "power" family of transformations for Odj through
the argument transform. The constant c of the transformations is specified through the argument
constant and the power is specified in lambda. This parameter is by default set to 0, which corresponds
to log transformation for both families. Setting lambda equal to 1 and letting the default constant equal
to 0 implies no transformation. Note that these functions assumes BHF model for the transformed
variables Ydj = T (Odj ). In the argument indicator, we must provide the name of the R function that
is applied to the untransformed variables Odj to obtain the target area parameter. For example, if the
target parameters are the area medians of the original untransformed variables Odj , we must specify
indicator=median regardless of the transformation taken.
The two above functions require the values of auxiliary variables for each out-of-sample unit
(Xnonsample). Additionally, in argument MC we must specify the number of Monte Carlo samples L that
we wish to use in the Monte Carlo approximation of the EB estimators given in Equation (10). These
functions ignore the observations with NA values in formula or dom. They also deliver EB estimates for
areas with zero sample size, that is, for the areas specified in selectdom without any observations in
formula, as long as the values of the auxiliary variables for all the units in these areas are included in
(`)
Xnonsample. In this case, the functions generate the out-of-sample elements Ydj from model (11) with
γ̂d = 0.
The function ebBHF() delivers a list of two objects: the first one is called eb and contains the EB
estimates for each selected domain, and the second one is called fit, and contains a summary of the
model fitting. The function pbmseebBHF() obtains the parametric bootstrap MSE estimates together
with the EB estimates. It delivers a list with two objects. The first one, est, is another list containing
itself two objects: the results of the point estimation process (eb) and a summary of the fitting process
(fit). The second one, mse, contains a data frame with the estimated MSEs for each selected domain.

Example 5. Poverty mapping

In this example, we will illustrate how to estimate poverty incidences in Spanish provinces (areas). As
given in Equation (12), the poverty incidence for a province is the province mean of a binary variable
Odj taking value 1 when the person’s income is below the poverty line z and 0 otherwise.
The data set incomedata contains synthetic unit-level data on income and other sociological
variables in the Spanish provinces. These data have been obtained by simulation, with the only
purpose of being able to illustrate the use of the package functions. Therefore, conclusions regarding
the levels of poverty in the Spanish provinces obtained from these data are not realistic. We will use the
following variables from the data set: province name (provlab), province code (prov), income (income),
sampling weight (weight), education level (educ), labor status (labor), and finally the indicators of
each of the categories of educ and labor.
We will obtain EB estimates of province poverty incidences based on BHF model for the variable
income. Note that the EB method assumes that the response variable considered in BHF model is
(approximately) normally distributed. However, the histogram of income appears to be highly right-
skewed and therefore transformation to achieve approximate normality is necessary. We select the log
transformation, which is a member of both Box-Cox and power family, taking λ = 0. For the constant
c in these transformation families, we tried with a grid of values in the range of income. For each
value of c in the grid, we fitted BHF model to log(income + c) and selected the value of c for which
the distribution of residuals was approximately symmetric, see the residual plots in Figure 4. The
resulting value of the constant was c = 3500.

The R Journal Vol. 7/1, June 2015 ISSN 2073-4859


C ONTRIBUTED R ESEARCH A RTICLES 94

The package functions dealing with EB method can estimate whatever domain target parameter as
desired, provided this target parameter is a function of a continuous variable Odj whose transformation
Ydj will act as response variable in BHF model. We just need to define the target parameter for the
domains as an R function. The target parameter in this example is the poverty incidence, which is a
function of the continuous variable income. Thus, we define the R function povertyincidence() as
function of y=income, considering as poverty line z = 6557.143.
> povertyincidence <- function(y) {
+ result <- mean(y < 6557.143)
+ return (result)
+ }
When estimating nonlinear parameters, the values of the auxiliary variables in the model are
needed for each out-of-sample unit. Although we will use the sample data from all the provinces to
fit the model, to save computation time here we will compute EB estimates and corresponding MSE
estimates only for the 5 provinces with the smallest sample sizes. For these selected provinces, the
data set Xoutsamp contains the values for each out-of-sample individual of the considered auxiliary
variables, which are the categories of education level and of labor status, defined exactly as in the data
set incomedata. Again, these data have been obtained by simulation.
We read the required data sets, create the vector provincecodes with province codes for the
selected provinces and create also Xoutsamp_AuxVar, containing the values of the auxiliary variables
for all out-of-sample individuals in these provinces.
> data("incomedata")
> data("Xoutsamp")
> provincecodes <- unique(Xoutsamp$domain)
> provincelabels <- unique(incomedata$provlab)[provincecodes]
> Xoutsamp_AuxVar <- Xoutsamp[ ,c("domain", "educ1", "educ3", "labor1", "labor2")]
Next, we use the function ebBHF to calculate EB estimates of the poverty incidences under BHF
model for log(income+constant) for the 5 selected provinces specified in the argument selectdom.
In the argument indicator, we must specify the function povertyincidence() defining the target
parameter.
> set.seed(123)
> EB <- ebBHF(income ~ educ1 + educ3 + labor1 + labor2, dom = prov,
+ selectdom = provincecodes, Xnonsample = Xoutsamp_AuxVar, MC = 50,
+ constant = 3500, indicator = povertyincidence, data = incomedata)
The list fit of the output gives information about the fitting process. For example, we can see whether
auxiliary variables are significant.
> EB$fit$summary
Linear mixed-effects model fit by REML
Data: NULL
AIC BIC logLik
18980.72 19034.99 -9483.361

Random effects:
Formula: ~1 | as.factor(dom)
(Intercept) Residual
StdDev: 0.09436138 0.4179426

Fixed effects: ys ~ -1 + Xs
Value Std.Error DF t-value p-value
Xs(Intercept) 9.505176 0.014384770 17143 660.7805 0
Xseduc1 -0.124043 0.007281270 17143 -17.0359 0
Xseduc3 0.291927 0.010366323 17143 28.1611 0
Xslabor1 0.145985 0.006915979 17143 21.1084 0
Xslabor2 -0.081624 0.017082634 17143 -4.7782 0
Correlation:
Xs(In) Xsedc1 Xsedc3 Xslbr1
Xseduc1 -0.212
Xseduc3 -0.070 0.206
Xslabor1 -0.199 0.128 -0.228
Xslabor2 -0.079 0.039 -0.039 0.168

The R Journal Vol. 7/1, June 2015 ISSN 2073-4859


C ONTRIBUTED R ESEARCH A RTICLES 95

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0 5000 10000 15000 −2 −1 0 1 2


Index Residuals

Figure 4: Index plot of residuals (left) and histogram of residuals (right) from the fitting of BHF model
to log(income+constant).

Standardized Within-Group Residuals:


Min Q1 Med Q3 Max
-4.2201202 -0.6617181 0.0203607 0.6881828 3.5797393

Number of Observations: 17199


Number of Groups: 52
Checking model assumptions is crucial since the optimality properties of the EB estimates depend
on the extent to which those assumptions are true. To detect departures from BHF model for the
transformed income, we can draw the usual residual plots. The following commands draw an index
plot of residuals and a histogram:

# Figure 4 left
> plot(EB$fit$residuals, xlab = "Index", ylab = "Residuals", cex.axis = 1.5,
+ cex.lab = 1.5, ylim = c(-2, 2), col = 4)
> abline(h = 0)

> # Figure 4 right


> hist(EB$fit$residuals, prob = TRUE, xlab = "Residuals", ylab = "", main = "",
+ cex.axis = 1.5, cex.lab = 1.5, xlim = c(-2, 2), ylim = c(0, 1))
These two plots appear in Figure 4, which shows no evidence of serious model departure.
Finally, we compute parametric bootstrap MSE estimates and calculate CVs of EB estimates.
This process might be slow for a large number of bootstrap or Monte Carlo replicates B and MC
respectively, large sample size or large number of auxiliary variables. Function pbmseebBHF() gives
also EB estimates apart from MSEs:
> set.seed(123)
> pbmse.EB <- pbmseebBHF(income ~ educ1 + educ3 + labor1 + labor2, dom = prov,
+ selectdom = provincecodes, Xnonsample = Xoutsamp_AuxVar,
+ B = 200, MC = 50, constant = 3500,
+ indicator = povertyincidence, data = incomedata)
Bootstrap procedure with B = 200 iterations starts.
b = 1
...
b = 200
> pbcv.EB <- 100 * sqrt(pbmse.EB$mse$mse) / abs(pbmse.EB$est$eb$eb) # compute CV
Finally, in the data frame results.EB we collect the sample sizes, EB estimates and CVs of the
poverty incidence for the 5 selected provinces.

> results.EB <- data.frame(ProvinceIndex = pbmse.EB$est$eb$domain,


+ ProvinceName = provincelabels,
+ SampleSize = pbmse.EB$est$eb$sampsize,
+ EB = pbmse.EB$est$eb$eb, cv.EB = pbcv.EB)

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C ONTRIBUTED R ESEARCH A RTICLES 96

> results.EB
ProvinceIndex ProvinceName SampleSize EB cv.EB
1 42 Soria 20 0.2104329 21.06776
2 5 Avila 58 0.1749877 19.49466
3 34 Palencia 72 0.2329916 11.57829
4 44 Teruel 72 0.2786618 11.89621
5 40 Segovia 58 0.2627178 13.21378

Other SAE software


The Official Statistics & Survey Methodology CRAN Task View of R (Templ, 2014) contains a subsection
called Small Area Estimation with some packages for SAE. The rsae package (Schoch, 2011) contains
functions for robust fitting of basic unit and area level models and prediction of area means. The
current version does not allow for categorical independent variables. The JoSae package (Breidenbach,
2011) includes functions for the unit-level EBLUP (Battese et al., 1988) and generalized regression
(GREG) estimators (Särndal, 1984) together with estimated variances. Only univariate unit-level
models with a simple block-diagonal variance structure are supported. The hbsae package (Boonstra,
2012) can be used to obtain estimates based on unit and area level models, where the model fitting can
be done by REML or a hierarchical Bayes procedure. In the last case, numerical integration is used to
average over the posterior density for the between-area variance.
Recently, several R packages for SAE that are not included in the subsection Small Area Estimation
have been developed. The mme package (Lopez-Vizcaino et al., 2014) includes functions for SAE
under three different multinomial linear mixed models: a model with independent random effects for
each category of the response variable, the same model with additional independent time effects, and
the same model with correlated time effects. The saery package (Esteban et al., 2014) contains functions
for obtaining EBLUPs and their MSEs based on the area-level model with time effects introduced
by Rao and Yu (1994) using the REML fitting method. The sae2 package (Fay and Diallo, 2015) also
offers functions for SAE under time-series area level models supporting univariate and multivariate
applications. They provide EBLUPs based on the Rao-Yu model as well as a modified ("dynamic")
version.
Other R software that is not available at CRAN includes the SAE package developed within
BIAS project (BIAS, 2005), which provides the classical EBLUP and the spatial EBLUP of Petrucci and
Salvati (2006). This project includes other methods based on Bayesian spatial models implemented in
WinBUGS (Lunn et al., 2000). Preliminary (and not so user friendly) versions of some of the functions
contained in the sae package described in this paper can be found in the website of the European
project SAMPLE (SAMPLE, 2007).
In addition to R software, SAS provides procedures such as MIXED, IML and hierarchical Bayes MCMC,
which fit unit and area level models and provide small area estimates together with estimated mean
squared errors. See examples of use in Mukhopadhyay and McDowell (2011). Other SAS macros have
been developed in the European project EURAREA (EURAREA, 2001). The software includes macros
to calculate GREG estimators under a standard linear regression model, the regression synthetic
estimator under two different models and the EBLUP using unit and area level models.

Summary
This paper presents the first R package that gathers most basic small area estimation techniques
together with more recent and sophisticated methods, such as those for estimation under a FH model
with spatial and spatio-temporal correlation or the methods for estimation of nonlinear parameters
based on BHF model. The package contains functions for point estimation and also for mean squared
error estimation using modern bootstrap techniques. The functions are described and their use is
demonstrated through interesting examples, including an example on poverty mapping. Nowadays,
we are developing new methods for small area estimation, which will be included in subsequent
versions of the sae package.

Acknowledgments
We would like to thank the reviewers for their really careful review of the manuscript. Their comments
have led to significant improvement of the paper. This work is supported by grants SEJ2007-64500,
MTM2012-37077-C02-01 and FP7-SSH-2007-1.

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C ONTRIBUTED R ESEARCH A RTICLES 97

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Isabel Molina
Department of Statistics
Universidad Carlos III de Madrid
28903 Getafe, Madrid
Instituto de Ciencias Matemáticas (ICMAT)
28049 Madrid
Spain
isabel.molina@uc3m.es

Yolanda Marhuenda
Instituto Centro de Investigación Operativa (CIO)
Department of Statistics, Mathematics and Informatics
Universidad Miguel Hernández de Elche
03202 Elche, Alicante
Spain
y.marhuenda@umh.es

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