We propose four different GMM estimators that allow almost consistent estimation of the structural parameters of panel probit models with fixed effects for the case of small T and large N. The moments used are derived for each period from a first order approximation of the mean of the dependent variable conditional on explanatory variables and on the fixed effect. The estimators differ w.r.t. the choice of instruments and whether they use trimming to reduce the bias or not. In a Monte Carlo study we compare these estimators with pooled probit and conditional logit estimators for different DGPs. The results show that the proposed estimators outperform these competitors in several situations.
Laisney, François and Michael Lechner (2002), Almost Consistent Estimation of Panel Probit Models with ‘Small’ Fixed Effects, ZEW Discussion Paper No. 02-64, Mannheim, published in: Econometric Reviews, 22 (1), 2003, pp.1-28.. Download