Consistent Estimation of the Fixed Effects Ordered Logit Model

Baetschmann, Gregori; Staub, Kevin E.; Winkelmann, Rainer

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Consistent Estimation of the Fixed Effects Ordered Logit Model

IZA Discussion Paper No. 5443

35 Pages Posted: 24 Jan 2011

See all articles by Gregori Baetschmann

Kevin E. Staub

University of Melbourne - Department of Economics; IZA Institute of Labor Economics

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

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Abstract

The paper re-examines existing estimators for the panel data fixed effects ordered logit model, proposes a new one, and studies the sampling properties of these estimators in a series of Monte Carlo simulations. There are two main findings. First, we show that some of the estimators used in the literature are inconsistent, and provide reasons for the inconsistency. Second, the new estimator is never outperformed by the others, seems to be substantially more immune to small sample bias than other consistent estimators, and is easy to implement. The empirical relevance is illustrated in an application to the effect of unemployment on life satisfaction.

Keywords: ordered response, panel data, correlated heterogeneity, incidental parameters

JEL Classification: C23, C25, J28, J64

Suggested Citation: Suggested Citation

Baetschmann, Gregori and Staub, Kevin E. and Winkelmann, Rainer, Consistent Estimation of the Fixed Effects Ordered Logit Model. IZA Discussion Paper No. 5443, Available at SSRN: https://ssrn.com/abstract=1745718