Many social phenomena are of a nested nature and recordedin hierarchical data, e.g., repeated observations of siblings (individual level) within families(context level). In these phenomena, unobserved heterogeneity can occur at both levels and may becorrelated with the regressors. This article addresses nested unobserved heterogeneity notorthogonal to the regressors, which is rarely discussed in the methodology literature. The articleextends the econometric one-factor fixed-effects approach to handle nested fixed effects.F tests for model comparisons are used to test whether the total heterogeneity exists and whetherthe total heterogeneity consists solely of contextual heterogeneity. It then introduces methods todecompose the two levels of heterogeneity and provides formal tests for each level andtheir relative importance, which are developed from classical ANOVA. To provide a stronger testfor time-varying context-specific heterogeneity, the article develops an estimator using thedifference-in-differences method. An empirical example of a study on child behavior problems isused to illustrate the methods introduced in the article.
Quality & Quantity – Springer Journals
Published: Oct 18, 2004
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