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Estimation for Dynamic and Static Panel Probit Models with Large Individual Effects

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Listed:
  • Tata Subba Rao
  • Granville Tunnicliffe Wilson
  • Wei Gao
  • Wicher Bergsma
  • Qiwei Yao

Abstract

For discrete panel data, the dynamic relationship between successive observations is often of interest. We consider a dynamic probit model for short panel data. A problem with estimating the dynamic parameter of interest is that the model contains a large number of nuisance parameters, one for each individual. Heckman proposed to use maximum likelihood estimation of the dynamic parameter, which, however, does not perform well if the individual effects are large. We suggest new estimators for the dynamic parameter, based on the assumption that the individual parameters are random and possibly large. Theoretical properties of our estimators are derived, and a simulation study shows they have some advantages compared with Heckman's estimator and the modified profile likelihood estimator for fixed effects.
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Suggested Citation

  • Tata Subba Rao & Granville Tunnicliffe Wilson & Wei Gao & Wicher Bergsma & Qiwei Yao, 2017. "Estimation for Dynamic and Static Panel Probit Models with Large Individual Effects," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(2), pages 266-284, March.
    • Handle: RePEc:bla:jtsera:v:38:y:2017:i:2:p:266-284
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    File URL: http://hdl.handle.net/10.1111/jtsa.12178
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    References listed on IDEAS

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    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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