Abstract and Keywords
This chapter considers the role of incidental parameters in capturing idiosyncratic features of individual entities within a panel and their influence on econometric estimation and inference. While incidental parameters relate to a single cross-section observation, their presence affects maximum likelihood estimates of other parameters of interest and can even result in inconsistency. The chapter discusses incidental parameter problems in the context of a prototype dynamic panel regression model under different assumptions on the size of the panel. It explores the effects on estimation and inference regarding the common panel regression coefficients of different specifications of the incidental parameters for the individual effects and time effects.
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