Question

Why is it said that estimation of a fixed effect model is inefficient?

Why is it said that estimation of a fixed effect model is inefficient?

Homework Answers

Answer #1

Estimation of fixed effect model is inefficient and the inefficiency can be heterogeneous, heteroskedastic and can follow a dynamic process. Estimation of fixed effect model involves solving the incidental parameters problem that affects maximum likelihood dummy variables estimator. This leads to inconsistent variance estimates (without affecting the frontier coefficients) and this makes the estimation of fixed effect model to be inefficient. True fixed effect models have non-stationary inefficiency.

The inefficiency can me marginalized by making use of simulation and use of maximum simulated likelihood principle.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
True or False: a. ( ) One advantage of fixed effects estimation is that inferences are...
True or False: a. ( ) One advantage of fixed effects estimation is that inferences are more robust to measurement error in the explanatory variables of interest compared with OLS estimation. b. ( ) The consistency of Fixed Effects estimators relies on weaker (more realistic) assumptions than those required for consistency of the Random Effects estimator. In this sense, we can say that Fixed Effects estimation is more robust than Random Effects estimation. c. ( ) Estimating a model using...
In hypothesis testing, why is it said that we are not proving the effect of IV?
In hypothesis testing, why is it said that we are not proving the effect of IV?
CAM photosynthesis is very inefficient. Why? If it is so inefficient, then why do some plants...
CAM photosynthesis is very inefficient. Why? If it is so inefficient, then why do some plants have it?
Briefly describe the median voter model. When does voting lead to economically inefficient outcomes? Why are...
Briefly describe the median voter model. When does voting lead to economically inefficient outcomes? Why are individuals more likely to act irrationally when it comes to voting relative to private consumption choices?
Explain why interaction (in a two-way ANOVA model (fixed factor effects) with alevels of Factor A...
Explain why interaction (in a two-way ANOVA model (fixed factor effects) with alevels of Factor A and b levels of Factor B and equal sample sizes) has (a - 1)(b - 1) degrees of freedom. Use the ideas of parameter estimation in your answer.
In the multiple linear regression model with estimation by ordinary least squares, why should we make...
In the multiple linear regression model with estimation by ordinary least squares, why should we make an analysis of the scatter plot between each covariable xij, j = 1, 2,. . . ,p with the residues ei?
why drude model failed to explain seebeck effect
why drude model failed to explain seebeck effect
In a monetary model with fixed exchange rates, discuss short run and long run effect of...
In a monetary model with fixed exchange rates, discuss short run and long run effect of a devaluation on balance of payments.
Using graphs, explain why monopolies are socially inefficient.
Using graphs, explain why monopolies are socially inefficient.
Why is a tax inefficient? A tax is inefficient because _______. A.the marginal social benefit from...
Why is a tax inefficient? A tax is inefficient because _______. A.the marginal social benefit from the last unit sold exceeds the marginal social cost of the last unit produced and a deadweight loss is created B.it decreases consumer surplus but increases producer surplus C.the burden of the tax is not always split equally between buyers and sellers D.with a tax, the market produces more than the equilibrium quantity
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT