Identification of Marginal Effects in a Nonparametric Correlated Random Effects Model

Abstract

In this article, we consider identification and estimation of average marginal effects in a correlated random effects model without imposing functional form assumptions on the structural likelihood or the mixing distribution. Identification is achieved through imposing that the mixing distribution depends on observed covariates only through an index function. We leave the functional form of the index function unrestricted subject to smoothness conditions. We present identification results for this model and consider estimation of the marginal effects of interest. We illustrate the approach through a brief empirical example, which considers the relationship between insider trading activity and trading volume.

KEY WORDS::

• Index
• Insider trading
• Sufficient statistic