Estimating Econometric Models with Fixed Effects.

The application of nonlinear fixed effects models in econometrics has often been avoided for two reasons, one methodological, one practical. The methodological question centers on a incidental parametres problem that raises questions about the statistical properties of the estimator. The practical one relates to the difficulty of estimating nonlinear models with possibly thousands of coefficients. This note will demonstrate that the second is in fact, a nonissue, and that in a very large number models of interest to practioners, estimation of the fixed effects model is quite feasible even in panels with huge numbers of groups.