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Development of the Spatial Credibility Model - Cont.
In order to determine the coefficients, the partial derivations of the expected value with respect to the coefficients are set to zero, which produces the following equations:
(1) E(Xt0) = a0 + ?i,u aiu E(Xiu)
(2) Cov(Xt0, Xjv) = ?i,u aiu Cov(Xiu, Xjv)
for each j and v. The county t is assumed to be fixed.
Equation 1 can be evaluated as:
Notice that the sum of the coefficients equals 1.00 as in classical credibility if a0 is replaced by ma0.
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