Consistent estimation of the fixed effects ordered logit model

• Published in: Journal of the Royal Statistical Society. Series A, Statistics in society Vol. 178; no. 3; pp. 685 - 703
• Main Authors: Baetschmann, Gregori, Staub, Kevin E., Winkelmann, Rainer
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01.06.2015; John Wiley & Sons Ltd; Oxford University Press
• Subjects: Consistent estimators; Econometrics; Economic models; Estimation bias; Estimation methods; Estimators; Fixed effects; Generalized method of moments; Life satisfaction; Logistic regression; Mathematical models; Maximum likelihood estimators; Monte Carlo methods; Monte Carlo simulation; Ordered response data; Panel data; Plant closings; Plant closures; Quality of life; Socioeconomic factors; Socioeconomics; Statistical analysis; Subjective wellbeing; Unemployment; Germany
• ISSN: 0964-1998; 1467-985X
• DOI: 10.1111/rssa.12090

The paper considers panel data methods for estimating ordered logit models with individual-specific correlated unobserved heterogeneity. We show that a popular approach is inconsistent, whereas some consistent and efficient estimators are available, including minimum distance and generalized method-of-moment estimators. A Monte Carlo study reveals the good properties of an alternative estimator that has not been considered in econometric applications before, is simple to implement and almost as efficient. An illustrative application based on data from the German Socio-Economic Panel confirms the large negative effect of unemployment on life satisfaction that has been found in the previous literature.