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

From   Richard Williams <>
Subject   Re: st: nbreg with fixed effect vs xtnbreg,fe
Date   Tue, 07 Feb 2012 21:47:47 -0500

At 08:52 PM 2/7/2012, Shikha Sinha wrote:
Hi all,

I emailed my query to tech support at Stata corp and below is the response;

Typically for a fixed effects negative binomial model, you would want to use
the -xtnbreg, fe- command.   -xtnbreg, fe- is fitting a conditional fixed
effects model.  When you include panel dummies in -nbreg- command, you are
fitting an unconditional fixed effects model.  For nonlinear models such as
the negative binomial model, the unconditional fixed effects estimator
produces inconsistent estimates.  This is caused by the incidental parameters
problem.  See the following references for theoretical aspects on the
incidental parameters problem:

               Greene, William H. "Econometric Analysis". Prentice Hall.
               Seventh Edition, page 413.

               Baltagi, Badi "Econometric Analysis of Panel Data".
                       4th. Edition. John Wiley and Sons LTD.
                       Section 11.1 (pages 237-8).

Again, unless I am missing something, Allison disagrees. On p. 64 of his book, he says "Using Monte Carlo simulations, Allison and Waterman found that the unconditional negative binomial estimator did not show any substantial bias from incidental parameters." He does add that the unconditional confidence intervals tended to be too small, but he shows how to easily correct for that. He then gives examples that he claims show that -xtnbreg, fe- is not a true fixed effects method.

Again, Allison's book is "Fixed effects regression models", Sage, 2009. His 2002 paper that his book draws from is

Allison, Paul D. and Richard Waterman (2002) "Fixed effects negative binomial regression models." In Ross M. Stolzenberg (ed.), Sociological Methodology 2002. Oxford: Basil Blackwell.

Again, I might be screwing up Allison's argument. But if not, I'd like to see him and StataCorp go 15 rounds on this. ;-)

Richard Williams, Notre Dame Dept of Sociology
OFFICE: (574)631-6668, (574)631-6463
HOME:   (574)289-5227
EMAIL:  Richard.A.Williams.5@ND.Edu

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