Is Adaptive Estimation Useful for Panel Models With Heteroskedasticity in the Unit-Specific Error Component? Some Monte Carlo Evidence

This paper first derives an adaptive estimator when heteroskedasticity is present in the unit-specific error in an error component model and then compares the finite sample performance of the proposed estimator with various other estimators. While the Monte Carlo results show that the proposed estimator performs adequately in terms of relative efficiency, its performance on the basis of empirical size is quite similar to the other estimators considered. The results from using the different estimators in two applications highlight the importance of devising a test in future to distinguish between the source of heteroskedasticity.