CIRJE-J-127. Sasase, Yoshitaka and Tatsuya Kubokawa, "Asymptotic Correction of Empirical Bayes Confidence Intervals and its Application to Small Area Estimation", March 2005.

This paper addresses the issue of constructing a confidence interval of a small area mean in a random effect or mixed effects linear model. A crude confidence interval based on the empirical Bayes method has the drawback that its coverage probability is much less than a nominal confidence coefficient. For improving on this confidence interval, the paper provides the procedure of adjusting the critical value, and the resulting confidence interval has a coverage probability which is identical to the nominal confidence coefficient in second order asymptotics when the number of small areas is large. The proposed confidence interval is numerically investigated based on simulation experiments and applied to posted land price data. These numerical studies illustrate the practical usefulness of the proposal.