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Can cohort data be treated as genuine panel data?

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Abstract

If repeated observations on the same individuals are not available it is not possible to capture unobserved individual characteristics in a linear model by using the standard fixed effects estimator. If large numbers of observations are available in each period one can use cohorts of individuals with common characteristics to achieve the same goal, as shown by Deaton (1985). It is tempting to analyze the observations on cohort averages as if they are observations on individuals which are observed in consecutive time periods. In this paper we analyze under which conditions this is a valid approach. Moreover, we consider the impact of the construction of the cohorts on the bias in the standard fixed effects estimator. Our results show that the effects of ignoring the fact that only a synthetic panel is available will be small if the cohort sizes are sufficiently large (100, 200 individuals) and if the true means within each cohort exhibit sufficient time variation.

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Authors and Affiliations

  1. Department of Econometrics, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands

    M. Verbeek & T. Nijman

Authors
  1. M. Verbeek
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  2. T. Nijman
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Additional information

The authors thank Bertrand Melenberg, Robert Moffitt, Guglielmo Weber, seminar participants at Texas A & M University, Rice University and the Conference on “The Econometrics of Panels and Pseudo Panels” (Venice, October 1990) and two anonymous referees for helpful comments. Rob Alessie and Pim Adang kindly provided the data. Financial support by the Royal Netherlands Academy of Arts and Sciences (K.N.A.W.) and the Netherlands Organization for Scientific Research (N.W.O.) is gratefully acknowledged.

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Verbeek, M., Nijman, T. Can cohort data be treated as genuine panel data?. Empirical Economics 17, 9–23 (1992). https://doi.org/10.1007/BF01192471

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