Cluster-Sample Methods in Applied Econometrics

Inference methods that recognize the clustering of individual observations have been available for more than 25 years. Brent Moulton (1990) caught the attention of economists when he demonstrated the serious biases that can result in estimating the effects of aggregate explanatory variables on individual-specific response variables. The source of the downward bias in the usual ordinary least-squares (OLS) standard errors is the presence of an unobserved, state-level effect in the error term. More recently, John Pepper (2002) showed how accounting for multi-level clustering can have dramatic effects on t statistics. While adjusting for clustering is much more common than it was 10 years ago, inference methods robust to cluster correlation are not used routinely across all relevant settings. In this paper, I provide an overview of applications of cluster-sample methods, both to cluster samples and to panel data sets.

[1]  E. Duflo,et al.  How Much Should We Trust Differences-in-Differences Estimates? , 2001 .

[2]  G. Kézdi Robust Standard Error Estimation in Fixed-Effects Panel Models , 2003 .

[3]  John V. Pepper,et al.  Robust inferences from random clustered samples: an application using data from the panel study of income dynamics , 2002 .

[4]  Thomas P. Lyon,et al.  Does Dual Sourcing Lower Procurement Costs? , 2006 .

[5]  David Card,et al.  Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania , 1993 .

[6]  Jeffrey M. Wooldridge,et al.  Solutions Manual and Supplementary Materials for Econometric Analysis of Cross Section and Panel Data , 2003 .

[7]  G. Bertola,et al.  Dealer Pricing of Consumer Credit , 2002, SSRN Electronic Journal.

[8]  S. Zeger,et al.  Longitudinal data analysis using generalized linear models , 1986 .

[9]  Wei Jiang,et al.  Analysts' Weighting of Private and Public Information , 2003 .

[10]  Brent R. Moulton An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit , 1990 .

[11]  Gur Huberman,et al.  Offering vs. Choice in 401(k) Plans: Equity Exposure and Number of Funds , 2006 .

[12]  Susanna Loeb,et al.  The Effect of Measured School Inputs on Academic Achievement: Evidence from the 1920s, 1930s and 1940s Birth Cohorts , 1995 .

[13]  Wei Jiang,et al.  Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates , 2003 .

[14]  G. Harrison,et al.  Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion , 2004 .

[15]  Mark L. DeFond,et al.  Investor Protection and Analysts' Cash Flow Forecasts Around the World , 2007 .

[16]  J. Paul Leigh,et al.  Instrumental variables technique: cigarette price provided better estimate of effects of smoking on SF-12. , 2004, Journal of clinical epidemiology.