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Finite Mixture for Panels with Fixed Effects

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  • Deb, P
  • Trivedi, P

Abstract

This paper develops …nite mixture models with …xed 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 …nite sample performance of the proposed estimator and also compares it with other estimators such the Mundlak-Chamberlain conditionally correlated random e¤ects estimator. The results of Monte Carlo experiments suggest that our proposed estimators of such models have excellent …nite 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.

Suggested Citation

  • 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.
  • Handle: RePEc:yor:hectdg:11/03
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    1. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    2. David Card & Carlos Dobkin & Nicole Maestas, 2004. "The Impact of Nearly Universal Insurance Coverage on Health Care Utilization and Health Evidence from Medicare," Working Papers WR-197, RAND Corporation.
    3. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
    4. Geert Dhaene & Koen Jochmans, 2011. "Profile-score Adjustements for Nonlinearfixed-effect Models," Working Papers hal-01073733, HAL.
    5. Deb, Partha & Trivedi, Pravin K., 2002. "The structure of demand for health care: latent class versus two-part models," Journal of Health Economics, Elsevier, vol. 21(4), pages 601-625, July.
    6. David Card & Carlos Dobkin & Nicole Maestas, 2008. "The Impact of Nearly Universal Insurance Coverage on Health Care Utilization: Evidence from Medicare," American Economic Review, American Economic Association, vol. 98(5), pages 2242-2258, December.
    7. Smith, James P, 1998. "Socioeconomic Status and Health," American Economic Review, American Economic Association, vol. 88(2), pages 192-196, May.
    8. Deb, Partha & Trivedi, Pravin K, 1997. "Demand for Medical Care by the Elderly: A Finite Mixture Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 313-336, May-June.
    9. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    10. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    11. Conway, Karen Smith & Deb, Partha, 2005. "Is prenatal care really ineffective? Or, is the 'devil' in the distribution?," Journal of Health Economics, Elsevier, vol. 24(3), pages 489-513, May.
    12. Anders Skrondal & Sophia Rabe-Hesketh, 2007. "Latent Variable Modelling: A Survey," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 34(4), pages 712-745.
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    Cited by:

    1. Péter Elek & Balázs Váradi & Márton Varga, 2015. "Effects of Geographical Accessibility on the Use of Outpatient Care Services: Quasi‐Experimental Evidence from Panel Count Data," Health Economics, John Wiley & Sons, Ltd., vol. 24(9), pages 1131-1146, September.
    2. repec:spr:jstada:v:4:y:2017:i:1:d:10.1186_s40488-017-0066-3 is not listed on IDEAS
    3. Bassetti, Thomas & Caruso, Raul & Cortes, Darwin, 2015. "Behavioral Differences in Violence: The Case of Intra-Group Differences of Paramilitaries and Guerrillas in Colombia," MPRA Paper 64943, University Library of Munich, Germany.
    4. Egger, Peter H. & Merlo, Valeria & Wamser, Georg, 2014. "Unobserved tax avoidance and the tax elasticity of FDI," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 1-18.
    5. Silvia Balia, 2014. "Survival expectations, subjective health and smoking: evidence from SHARE," Empirical Economics, Springer, vol. 47(2), pages 753-780, September.
    6. repec:ris:apltrx:0315 is not listed on IDEAS
    7. Ryo Okui & Wendun Wang, 2018. "Heterogeneous structural breaks in panel data models," Papers 1801.04672, arXiv.org.
    8. Galina Besstremyannaya, 2014. "Heterogeneous effect of coinsurance rate on healthcare costs: generalized finite mixtures and matching estimators," Discussion Papers 14-014, Stanford Institute for Economic Policy Research.
    9. Deguilhem, Thibaud & Berrou, Jean-Philippe & Combarnous, François, 2017. "Using your ties to get a worse job? The differential effects of social networks on quality of employment: Evidence from Colombia," MPRA Paper 78628, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • 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; Probabilities
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • I1 - Health, Education, and Welfare - - Health

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