Grouped effects estimators in fixed effects models

C. Alan Bester and Christian Hansen

Journal of Econometrics, 2016, vol. 190, issue 1, 197-208

Abstract: We consider estimation of nonlinear panel data models with common and individual specific parameters. Fixed effects estimators are known to suffer from the incidental parameters problem, which can lead to large biases in estimates of common parameters. Pooled estimators, which ignore heterogeneity across individuals, are also generally inconsistent. We assume that individuals in the data are grouped on multiple levels where groups are defined by some observable external classification. We consider “group effects” estimators, where individual specific parameters are assumed common across groups at some level. We provide conditions under which group effects estimates of common parameters are asymptotically unbiased and normal. The conditions suggest a tradeoff between two sources of bias, one due to incidental parameters and the other due to misspecification of unobserved heterogeneity.

Keywords: Fixed effects; Panel data; Hierarchical models (search for similar items in EconPapers)
JEL-codes: C10 C13 C23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:190:y:2016:i:1:p:197-208

DOI: 10.1016/j.jeconom.2012.08.022

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