Random effects panel data models with known heteroskedasticity

The paper considers two estimators for the linear random effects panel data model with known heteroskedasticity. Examples where heteroskedasticity can be treated as given include panel regression with averaged data, meta regression and the linear probability model. While one estimator builds on the additive random effects assumption, the other, which is simpler to implement in standard software, assumes that the random effect is multiplied by the heteroskedastic standard deviation. Simulation results show that substantial efficiency gains can be realized with either of the two estimators, even in case of misspecification of the scedastic function. Correct confidence interval coverage is obtained if clustered standard errors are used. Efficiency gains are also evident in an illustrative meta-regression application estimating the effect of study design features on loss aversion coefficients.

Publication Details

Journal
Zurich Open Repository and Archive (University of Zurich)
Published
2024-09-01
DOI
https://doi.org/10.5167/uzh-259907
Primary Topic
Spatial and Panel Data Analysis
Type
article
Field-Weighted Citation Impact
0.00
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article

Random effects panel data models with known heteroskedasticity

Zurich Open Repository and Archive (University of Zurich)
Spatial and Panel Data Analysis
article

Random effects panel data models with known heteroskedasticity

article en

Abstract

The paper considers two estimators for the linear random effects panel data model with known heteroskedasticity. Examples where heteroskedasticity can be treated as given include panel regression with averaged data, meta regression and the linear probability model. While one estimator builds on the additive random effects assumption, the other, which is simpler to implement in standard software, assumes that the random effect is multiplied by the heteroskedastic standard deviation. Simulation results show that substantial efficiency gains can be realized with either of the two estimators, even in case of misspecification of the scedastic function. Correct confidence interval coverage is obtained if clustered standard errors are used. Efficiency gains are also evident in an illustrative meta-regression application estimating the effect of study design features on loss aversion coefficients.

Zurich Open Repository and Archive (University of Zurich)
Openalex Percentile: Top 58%
Spatial and Panel Data Analysis
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