Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 2009, Volume 77, Issue 2

Robust Priors in Nonlinear Panel Data Models
p. 489-536

Manuel Arellano, Stéphane Bonhomme

Many approaches to estimation of panel models are based on an average or integrated likelihood that assigns weights to different values of the individual effects. Fixed effects, random effects, and Bayesian approaches all fall into this category. We provide a characterization of the class of weights (or priors) that produce estimators that are first‐order unbiased. We show that such bias‐reducing weights will depend on the data in general unless an orthogonal reparameterization or an essentially equivalent condition is available. Two intuitively appealing weighting schemes are discussed. We argue that asymptotically valid confidence intervals can be read from the posterior distribution of the common parameters when and grow at the same rate. Next, we show that random effects estimators are not bias reducing in general and we discuss important exceptions. Moreover, the bias depends on the Kullback–Leibler distance between the population distribution of the effects and its best approximation in the random effects family. Finally, we show that, in general, standard random effects estimation of marginal effects is inconsistent for large , whereas the posterior mean of the marginal effect is large‐ consistent, and we provide conditions for bias reduction. Some examples and Monte Carlo experiments illustrate the results.

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Supplemental Material

Supplement to "Robust priors in nonlinear panel data models"

This supplementary appendix contains proofs of some results contained in the paper.

Supplement to "Robust priors in nonlinear panel data models"

A zip file that contains all the programs used to generate the tables and figures in the paper, as well as a ``read me'' file.

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