Linear Fixed-Effects Estimation with Non-Repeated Outcomes

Tauchmann H, Farbmacher H (2021)

Publication Language: English

Publication Type: Other publication type

Publication year: 2021

Series: FAU Discussion Papers in Economics

Book Volume: 03/2021

Article Number: 03/2021

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This paper demonstrates that popular linear fixed-effects panel-data estimators are biased and inconsistent when applied in a discrete-time hazard setting – that is, one in which the outcome variable is a binary dummy indicating an absorbing state, even if the data-generating process is fully consistent with the linear discrete-time hazard model. In addition to conventional survival bias, these estimators suffer from another source of – frequently severe – bias that originates from the data transformation itself and, unlike survival bias, is present even in the absence of any unobserved heterogeneity. We suggest an alternative estimation strategy, which is instrumental variables estimation using first-differences of the exogenous variables as instruments for their levels. Monte Carlo simulations and an empirical application substantiate our theoretical results.

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How to cite


Tauchmann, H., & Farbmacher, H. (2021). Linear Fixed-Effects Estimation with Non-Repeated Outcomes.


Tauchmann, Harald, and Helmut Farbmacher. Linear Fixed-Effects Estimation with Non-Repeated Outcomes. 2021.

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