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Re: st: nbreg with fixed effect vs xtnbreg,fe


From   Richard Williams <richardwilliams.ndu@gmail.com>
To   statalist@hsphsun2.harvard.edu, statalist@hsphsun2.harvard.edu
Subject   Re: st: nbreg with fixed effect vs xtnbreg,fe
Date   Wed, 08 Feb 2012 01:42:12 -0500

At 12:50 AM 2/8/2012, Muhammad Anees wrote:
Also the abstract in online from Guimarães, P (2008) is

In this paper I show that the conditional fixed effects negative
binomial model for count panel data does not control for individual
fixed effects unless a very specific set of assumptions are met. I
also propose a score test to verify whether these assumptions are met.

The full reference for the paper is
Guimarães, P., (2008), The fixed effects negative binomial model
revisited, Economics Letters, 99, pp63­66

It, thus, indicates to take care when to choose the fixed effects
model while using Negative Binomial Regressions.

William Greene also has some working papers on this, e.g.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1281928

I can't say that I fully understand his arguments, but he says things like "The difference between the HHG and true FE models is that HHG builds the effects into the variance of the random variable, not the mean. Thus, we cannot conclude that the HHG estimator is a consistent estimator of a model that contains a heterogeneous mean...it is reasonable to conclude that the HHG estimator is at least potentially problematic...In the HHG fixed effects NB model, the fixed effects enter the model through the dispersion parameter rather than the conditional mean function. This has the implication that time invariant variables can coexist with the effects. This calls the interpretation of the heterogeneity in the model into question."

On the other hand he proposes some alternatives but notes that they have problems too. At this point I am thinking the safest route is to make sure you never study a problem that requires negative binomial regression with fixed effects. ;-)


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Richard Williams, Notre Dame Dept of Sociology
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