The Projection Solution to the Incidental Parameter Problem

Andrew Chesher, Adam M. Rosen and Yuanqi Zhang

Papers from arXiv.org

Abstract: This paper introduces a new approach to econometric analysis of nonlinear panel data models when the number of observations per observational unit is small. In such models the presence of variables that are constant within, while varying across, units results in an incidental parameter problem. The approach taken in this paper removes these incidental parameters via projection, which produces a correspondence specifying all combinations of observed variables and within-unit-varying unobserved heterogeneity that are achievable by choice of some value of the unit-specific incidental parameters. With unit-specific variables removed, there is no need for assumptions concerning their joint distribution with other variables. The result is an incomplete model which is typically partially identifying. Identified sets are characterized via moment inequalities using tools of random set theory. Examples of application to static and dynamic models with discrete or continuous outcomes using distribution-free restrictions on within-unit-varying unobserved heterogeneity are presented.

Date: 2026-07
New Economics Papers: this item is included in nep-dcm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2607.10043 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2607.10043

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().