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Journal of Econometric Methods

Ed. by Giacomini, Raffaella / Li, Tong

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Finite Mixture for Panels with Fixed Effects

Partha Deb
  • Department of Economics, Hunter College and the Graduate Center, City University of New York, and National Bureau of Economic Research
  • Other articles by this author:
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/ Pravin K. Trivedi
  • Corresponding author
  • School of Economics, University of Queensland, Level 6, Colin Clark Building, St. Lucia, QLD 4072, Australia
  • Department of Economics, Wylie Hall 105, Indiana University, Bloomington, IN 47405, USA
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  • Other articles by this author:
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Published Online: 2013-03-28 | DOI: https://doi.org/10.1515/jem-2012-0018


This paper develops finite mixture models with fixed effects for two families of distributions for which the incidental parameter problem has a solution. Analytical results are provided for mixtures of Normals and mixtures of Poisson. We provide algorithms based on the expectations-maximization (EM) approach as well as computationally simpler equivalent estimators that can be used in the case of the mixtures of normals. We design and implement a Monte Carlo study that examines the finite sample performance of the proposed estimator and also compares it with other estimators such the Mundlak-Chamberlain conditionally correlated random effects estimator. The results of Monte Carlo experiments suggest that our proposed estimators of such models have excellent finite sample properties, even in the case of relatively small T and moderately sized N dimensions. The methods are applied to models of healthcare expenditures and counts of utilization using data from the Health and Retirement Study.

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About the article

Corresponding author: Pravin K. Trivedi, School of Economics, University of Queensland, Level 6, Colin Clark Building, St. Lucia, QLD 4072, Australia; and Department of Economics, Wylie Hall 105, Indiana University, Bloomington, IN 47405, USA

Published Online: 2013-03-28

Published in Print: 2013-07-01

Citation Information: Journal of Econometric Methods, Volume 2, Issue 1, Pages 35–51, ISSN (Online) 2156-6674, ISSN (Print) 2194-6345, DOI: https://doi.org/10.1515/jem-2012-0018.

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