Abstract

http://ssrn.com/abstract=762504
 
 

References (20)



 
 

Citations (8)



 


 



A Penalty Function Approach to Bias Reduction in Non-linear Panel Models with Fixed Effects


Alan Bester


University of Chicago Graduate School of Business

Christian Hansen


University of Chicago Graduate School of Business

June 21, 2005


Abstract:     
In this paper, we consider estimation of nonlinear panel data models that include individual specific fixed effects. Estimation of these models is complicated by the incidental parameters problem; that is, noise in the estimation of the fixed effects when the time dimension is short generally results in inconsistent estimates of the common parameters due to the nonlinearity of the problem. We present a penalty for the objective function that reduces the bias in the resulting point estimates. The penalty function involves only cross-products of scores and the hessian matrix and so is simple to construct in practice. The form of the penalty also provides interesting intuition into how the bias reduction is working. We present simulation results that suggest that the penalized optimization approach may substantially reduce the bias in nonlinear fixed effects models.

Number of Pages in PDF File: 27

Keywords: Incidental Parameters, Fixed Effects, Panel Data, Bias

JEL Classification: C10, C13, C23

working papers series


Download This Paper

Date posted: July 29, 2005  

Suggested Citation

Bester, Alan and Hansen, Christian, A Penalty Function Approach to Bias Reduction in Non-linear Panel Models with Fixed Effects (June 21, 2005). Available at SSRN: http://ssrn.com/abstract=762504 or http://dx.doi.org/10.2139/ssrn.762504

Contact Information

Alan Bester
University of Chicago Graduate School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1714 (Phone)
Christian Hansen (Contact Author)
University of Chicago Graduate School of Business ( email )
Chicago, IL 60637
United States
773-834-1702 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 990
Downloads: 101
Download Rank: 154,144
References:  20
Citations:  8

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.266 seconds