Finite Mixture for Panels with Fixed Effects

Partha Deb and Pravin Trivedi

No 432, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: This paper develops finite mixture models with fixed effects for two families of distributions for which the incidental parameter problem has a solution. Analytical results are provided for mixtures of Normals and mixtures of Poisson. We provide algorithms based on the expectations-maximization (EM) approach as well as computationally simpler equivalent estimators that can be used in the case of the mixtures of normals. We design and implement a Monte Carlo study that examines the finite sample performance of the proposed estimator and also compares it with other estimators such the Mundlak-Chamberlain conditionally correlated random effects estimator. The results of Monte Carlo experiments suggest that our proposed estimators of such models have excellent finite sample properties, even in the case of relatively small T and moderately sized N dimensions. The methods are applied to models of healthcare expenditures and counts of utilization using data from the Health and Retirement Study.

Keywords: Finite Mixture Models; Fixed Effects; Panel Data; Health and Retirement Study; Expectations Maximization (search for similar items in EconPapers)
JEL-codes: C15 C23 C25 I1 J28 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Finite Mixture for Panels with Fixed Effects (2013)
Working Paper: Finite Mixture for Panels with Fixed Effects (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:432

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