st: Same results OLS and Random Effects

["Pelkowski, Jodi" <jodi.pelkowski@wichita.edu>]

Nature of problem:

In running xtreg with random effects,  sigma_u and rho are reports as “0”.   I obtain the exact same coefficients and standard errors when OLS is run.   (So basically Stata is defaulting to OLS).  There is no problem using fixed effects.     When the same regression is estimated using the Limdep regression package, sigma_u and rho are both >0 and the coefficients  and standard errors differ from OLS.

Why is Stata defaulting to OLS.   Whom do I believe Stata or Limdep?

Note:  I checked to see if there was anything strange with the regressors or the id variable.   There isn’t.  For example if I switch the dependent variable with a regressor, Stata works fine.
The original dependent variable takes on integer values between 1 and 255 with lots of variation.  The sample size is 931 and there are 108 groups.


Below is a simplified version of regression that was run:


. xtset zid
       panel variable:  zid (unbalanced)

. xtreg y x stars,  re

Random-effects GLS regression                   Number of obs      =       931
Group variable: zid                             Number of groups   =       108

R-sq:  within  = 0.0193                         Obs per group: min =         1
       between = 0.1555                                        avg =       8.6
       overall = 0.0534                                        max =        37

Random effects u_i ~ Gaussian                   Wald chi2(2)       =     52.36
corr(u_i, X)       = 0 (assumed)                Prob > chi2        =    0.0000

------------------------------------------------------------------------------
           y |      Coef.   Std. Err.      z    P>|z|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
           x |  -.5014859   .2454555    -2.04   0.041    -.9825698    -.020402
       stars |  -14.90484   2.827657    -5.27   0.000    -20.44694    -9.36273
       _cons |   207.6687   17.41683    11.92   0.000     173.5324    241.8051
-------------+----------------------------------------------------------------
     sigma_u |          0
     sigma_e |  73.292219
         rho |          0   (fraction of variance due to u_i)


 . sum y x stars zid

    Variable |       Obs        Mean    Std. Dev.       Min        Max
-------------+--------------------------------------------------------
           y |       931    120.6498    74.36455          1        255
           x |       931    78.77133    10.84436      44.01     106.93
       stars |       931     3.18797    .9413473          1          5
         zid |       931    57.77336    32.22844          1        114
*
*   For searches and help try:
*   http://www.stata.com/help.cgi?search
*   http://www.stata.com/support/statalist/faq
*   http://www.ats.ucla.edu/stat/stata/