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st: logit with correlated residuals
Dear Statalist,
I have a dataset consisting of individual characteristics for N firms. For
each pair of them, I also know whether they are in a business relationship
or not.
I am modelling the likelihood of having a business relationship, for each
pair, based on the firms individual characteristics (difference in size,
etc...).
By using a logit, the results are presumably affected by the fact that the
residuals are going to be correlated across observations, and standard
errors could be underestimated.
As a first solution, I've added N-1 dummies (for each pair, I have two
dummies assuming value 1) and estimated the new model with fixed effects.
Could you suggest me another way to address the problem at hand? For
instance, how to cluster the residual around the firms identifiers in a
logit model?
Many thanks!
Alex
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