Finite Mixture for Panels with Fixed Effects
AbstractThis paper develops finite mixture models with fixed effects for two families of distributions for which the incidental parameter problem has a solution. Analytical results are provided for mixtures of Normals and mixtures of Poisson. We provide algorithms based on the expectations-maximization (EM) approach as well as computationally simpler equivalent estimators that can be used in the case of the mixtures of normals. We design and implement a Monte Carlo study that examines the finite sample performance of the proposed estimator and also compares it with other estimators such the Mundlak-Chamberlain conditionally correlated random effects estimator. The results of Monte Carlo experiments suggest that our proposed estimators of such models have excellent finite sample properties, even in the case of relatively small T and moderately sized N dimensions. The methods are applied to models of healthcare expenditures and counts of utilization using data from the Health and Retirement Study.
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Bibliographic InfoPaper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 432.
Length: 32 pages
Date of creation: 2011
Date of revision:
Finite Mixture Models; Fixed Effects; Panel Data; Health and Retirement Study; Expectations Maximization;
Other versions of this item:
- Deb, P; & Trivedi, P;, 2011. "Finite Mixture for Panels with Fixed Effects," Health, Econometrics and Data Group (HEDG) Working Papers 11/03, HEDG, c/o Department of Economics, University of York.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
- I1 - Health, Education, and Welfare - - Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
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