Re: st: nbreg with fixed effect vs xtnbreg,fe

[Richard Williams <richardwilliams.ndu@gmail.com>]

At 12:50 AM 2/8/2012, Muhammad Anees wrote:
> Also the abstract in online from Guimarães, P (2008) is
>
> In this paper I show that the conditional fixed effects negative
> binomial model for count panel data does not control for individual
> fixed effects unless a very specific set of assumptions are met. I
> also propose a score test to verify whether these assumptions are met.
>
> The full reference for the paper is
> Guimarães, P., (2008), The fixed effects negative binomial model
> revisited, Economics Letters, 99, pp63­66
>
> It, thus, indicates to take care when to choose the fixed effects
> model while using Negative Binomial Regressions.
William Greene also has some working papers on this, e.g.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1281928

I can't say that I fully understand his 
arguments, but he says things like "The 
difference between the HHG and true FE models is 
that HHG builds the effects into the variance of 
the random variable, not the mean. Thus, we 
cannot conclude that the HHG estimator is a 
consistent estimator of a model that contains a 
heterogeneous mean...it is reasonable to conclude 
that the HHG estimator is at least potentially 
problematic...In the HHG fixed effects NB model, 
the fixed effects enter the model through the 
dispersion parameter rather than the conditional 
mean function. This has the implication that time 
invariant variables can coexist with the effects. 
This calls the interpretation of the 
heterogeneity in the model into question."
On the other hand he proposes some alternatives 
but notes that they have problems too. At this 
point I am thinking the safest route is to make 
sure you never study a problem that requires 
negative binomial regression with fixed effects. ;-)

-------------------------------------------
Richard Williams, Notre Dame Dept of Sociology
OFFICE: (574)631-6668, (574)631-6463
HOME:   (574)289-5227
EMAIL:  Richard.A.Williams.5@ND.Edu
WWW:    http://www.nd.edu/~rwilliam


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