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Testing for Time-Invariant Unobserved Heterogeneity in Generalized Linear Models for Panel Data

Author

Listed:
  • Francesco Bartolucci

    (University of Perugia)

  • Federico Belotti

    (University of Rome "Tor Vergata")

  • Franco Peracchi

    (University of Rome "Tor Vergata" and EIEF)

Abstract

Recent literature on panel data has emphasized the importance of accounting for time-varying unobserved heterogeneity, which may stem either from time-varying omitted variables or macro-level shocks that affect each individual unit differently. In this paper, we propose a computationally convenient test for the null hypothesis of time-invariant individual effects. The proposed test is an application of Hausman (1978) specification test procedure and can be applied to generalized linear models for panel data, a wide class of models that includes the Gaussian linear model and a variety of nonlinear models typically employed for discrete or categorical outcomes. The basic idea is to compare fixed effects estimators defined as the maximand of full and pairwise conditional likelihood functions. Thus, the proposed approach requires no assumptions on the distribution of the individual effects and, most importantly, it does not require them to be independent of the covariates in the model. We investigate the finite sample properties of the test through a set of Monte Carlo experiments. Our results show that the test performs quite well, with small size distortions and good power properties. A health economics example based on data from the Health and Retirement Study is used to illustrate the proposed test.

Suggested Citation

  • Francesco Bartolucci & Federico Belotti & Franco Peracchi, 2013. "Testing for Time-Invariant Unobserved Heterogeneity in Generalized Linear Models for Panel Data," EIEF Working Papers Series 1312, Einaudi Institute for Economics and Finance (EIEF), revised May 2013.
  • Handle: RePEc:eie:wpaper:1312
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Francesco, Bartolucci & Silvia, Bacci & Claudia, Pigini, 2015. "A misspecification test for finite-mixture logistic models for clustered binary and ordered responses," MPRA Paper 64220, University Library of Munich, Germany.
    2. De Arcangelis, Giuseppe & Di Porto, Edoardo & Santoni, Gianluca, 2015. "Migration, labor tasks and production structure," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 156-169.
    3. Vincenzo Atella & Federico Belotti & Domenico Depalo & Andrea Piano Mortari, 2013. "Measuring spatial effects in presence of institutional constraints: the case of Italian Local Health Authority expenditure," CEIS Research Paper 278, Tor Vergata University, CEIS, revised 08 May 2013.
    4. repec:eee:ecosta:v:3:y:2017:i:c:p:112-131 is not listed on IDEAS
    5. Tiangboho Sanogo, 2017. "Does fiscal decentralization enhance citizens’ access to public services and reduce poverty? Evidence from a conflict setting," Working Papers halshs-01582478, HAL.
    6. Samer Hamidi & Fevzi Akinci, 2016. "Measuring Efficiency of Health Systems of the Middle East and North Africa (MENA) Region Using Stochastic Frontier Analysis," Applied Health Economics and Health Policy, Springer, vol. 14(3), pages 337-347, June.
    7. Jean-François BRUN & Tiangboho SANOGO, 2017. "Effect of central transfers on municipalities’ own revenue mobilization: Do conflict and local revenue management matter?," Working Papers 201716, CERDI.
    8. Atella, Vincenzo & Belotti, Federico & Depalo, Domenico & Piano Mortari, Andrea, 2014. "Measuring spatial effects in the presence of institutional constraints: The case of Italian Local Health Authority expenditure," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 232-241.
    9. repec:spr:stmapp:v:26:y:2017:i:3:d:10.1007_s10260-017-0376-0 is not listed on IDEAS
    10. Tiangboho SANOGO, 2017. "Does fiscal decentralization enhance citizens’ access to public services and reduce poverty? Evidence from a conflict setting," Working Papers 201715, CERDI.
    11. Brown, Sarah & Ghosh, Pulak & Taylor, Karl, 2014. "The existence and persistence of household financial hardship: A Bayesian multivariate dynamic logit framework," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 285-298.
    12. Jean-François Brun & Tiangboho Sanogo, 2017. "Effect of central transfers on municipalities' own revenue mobilization: Do conflict and local revenue management matter?," Working Papers halshs-01613108, HAL.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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