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Re: st: Random effetcs and unobserved heterogeneity


From   Scott Cunningham <scunning@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Random effetcs and unobserved heterogeneity
Date   Fri, 8 Sep 2006 15:45:42 -0400

On Sep 8, 2006, at 3:30 PM, menale kassie wrote:

Dear All,

Does the random effects model address concenrs of
omitted variables (e.g. unobserved household
heterogeneity)?
It depends on what you mean by address. If the omitted variables are correlated with the included covariates, random effects estimators will not be unbiased and consistent. The random effects model explicitly assumes that the omitted variables are uncorrelated with covariates in the model. This is covered thoroughly in Wooldridge's panel and cross-section textbook (which I don't have with me), and Cameron and Trivedi (which I do have with me) in chapter 22.

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