Thank you, Mark and David, for your quick replies.
-David Bernstein
--- In [email protected], "Mark Schaffer"
<M.E.Schaffer@h...> wrote:
> David,
>
> Subject: st: Clustering vs. Indicator variables in a
Logit
> To: statalist@h...
> From: DBernstein@l...
> Date sent: Mon, 8 Nov 2004 10:59:45 -0500
> Send reply to: statalist@h...
>
> > Hello All,
> >
> > I understand that clustering specifies that observations be
independent
> > across groups while allowing for changes in variance within a
group. My
> > question is how is this different than controlling for a group
with an
> > indicator (0/1) variables.
> >
> > For example, If my data contains patient data for 12 hospitals
and my LHS
> > variable is (0/1) for recovery and my RHS variables include
characteristic
> > variables, treatment type, etc. What is the difference between
clustering
> > on hospital or creating an indicator variable for each hospital?
>
> The indicator variable approach is a particular functional form
that
> allows for intra-group correlation. With clustering, you allow
for
> arbitrary intra-group correlation. For example, if you were
working
> with panel data, an indicator variable approach would be like
> assuming intra-group correlation that never dies out over time,
> whereas the cluster approach allows for any time of serial
> correlation within the group.
>
> Also, as Dave pointed out, the clustering approach gives you
robust
> standard errors and doesn't affect the coefficients (unless you go
> down a 2-step GMM route or something like that).
>
> Last point - you can combine the two approaches, i.e., use
indicator
> variables in the estimation, and also request standard errors that
> are robust to any intra-group correlation that the indicator
variable
> approach didn't properly account for.
>
> Hope this helps.
>
> --Mark
>
> >
> > Thanks in advance for any commentary,
> >
> > David J. Bernstein, Ph.D.
> > dbernstein@l...
> >
> >
> >
> > *
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>
> Prof. Mark E. Schaffer
> Director
> Centre for Economic Reform and Transformation
> Department of Economics
> School of Management & Languages
> Heriot-Watt University, Edinburgh EH14 4AS UK
> 44-131-451-3494 direct
> 44-131-451-3008 fax
> 44-131-451-3485 CERT administrator
> http://www.som.hw.ac.uk/cert
>
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*
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