Almost Consistent Estimation of Panel Probit Models with 'Small' Fixed Effects

36 Pages Posted: 9 Apr 2003

See all articles by Francois Laisney

Francois Laisney

ZEW – Leibniz Centre for European Economic Research

Michael Lechner

University of St. Gallen - Swiss Institute for Empirical Economic Research

Date Written: June 2002

Abstract

We propose four different GMM estimators that allow almost consistent estimation of the structural parameters of panel probit models with fixed effects for the case of small T and large N. The moments used are derived for each period from a first order approximation of the mean of the dependent variable conditional on explanatory variables and on the fixed effect. The estimators differ w.r.t. the choice of instruments and whether they use trimming to reduce the bias or not. In a Monte Carlo study we compare these estimators with pooled probit and conditional logit estimators for different DGPs. The results show that the proposed estimators outperform these competitors in several situations.

Keywords: Panel data, binary choice model, generalised method of moments, fixed effects

JEL Classification: C23, C35, C51

Suggested Citation

Laisney, Francois and Lechner, Michael, Almost Consistent Estimation of Panel Probit Models with 'Small' Fixed Effects (June 2002). ZEW Discussion Paper No. 02-64. Available at SSRN: https://ssrn.com/abstract=385423 or http://dx.doi.org/10.2139/ssrn.385423

Francois Laisney (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Michael Lechner

University of St. Gallen - Swiss Institute for Empirical Economic Research ( email )

Varnbuelstrasse 14
St. Gallen, 9000
Switzerland
+41 71 224 2320 (Phone)

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