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May 6, 2009

●nonlinear FE


Fixed effects estimation of structural parameters and marginal effects in panel probit models
Iván Fernández-Val
(J. Econmetrics v. 150)


Fixed effects estimators of nonlinear panel models can be severely biased due to the incidental parameters problem. In this paper, I characterize the leading term of a large-T expansion of the bias of the MLE and estimators of average marginal effects in parametric fixed effects panel binary choice models. For probit index coefficients, the former term is proportional to the true value of the coefficients being estimated. This result allows me to derive a lower bound for the bias of the MLE. I then show that the resulting fixed effects estimates of ratios of coefficients and average marginal effects exhibit no bias in the absence of heterogeneity and negligible bias for a wide variety of distributions of regressors and individual effects in the presence of heterogeneity. I subsequently propose new bias-corrected estimators of index coefficients and marginal effects with improved finite sample properties for linear and nonlinear models with predetermined regressors.