Random Effects Misspecification Can Have Severe Consequences for Random Effects Inference in Linear Mixed Models

There has been considerable and controversial research over the past two decades into how successfully random effects misspecification in mixed models (i.e. assuming normality for the random effects when the true distribution is non‐normal) can be diagnosed and what its impacts are on estimation and inference. However, much of this research has focused on fixed effects inference in generalised linear mixed models. In this article, motivated by the increasing number of applications of mixed models where interest is on the variance components, we study the effects of random effects misspecification on random effects inference in linear mixed models, for which there is considerably less literature. Our findings are surprising and contrary to general belief: for point estimation, maximum likelihood estimation of the variance components under misspecification is consistent, although in finite samples, both the bias and mean squared error can be substantial. For inference, we show through theory and simulation that under misspecification, standard likelihood ratio tests of truly non‐zero variance components can suffer from severely inflated type I errors, and confidence intervals for the variance components can exhibit considerable under coverage. Furthermore, neither of these problems vanish asymptotically with increasing the number of clusters or cluster size. These results have major implications for random effects inference, especially if the true random effects distribution is heavier tailed than the normal. Fortunately, simple graphical and goodness‐of‐fit measures of the random effects predictions appear to have reasonable power at detecting misspecification. We apply linear mixed models to a survey of more than 4 000 high school students within 100 schools and analyse how mathematics achievement scores vary with student attributes and across different schools. The application demonstrates the sensitivity of mixed model inference to the true but unknown random effects distribution.     

Supplier qualification for high-value goods and services in Nigeria: a comparison of qualified and non-qualified suppliers

This study set out to understand the capabilities of suppliers of high-value products and services in Nigeria. Supplier capability data were collected from almost 500 potential suppliers across 28 product categories. The findings indicate that only a small minority of potential suppliers achieved the required levels of performance and that very few companies have suitable operational capabilities or corporate citizenship behaviour. Furthermore, significant differences were found between service suppliers and product suppliers with regard to performance. The findings suggest that the majority of suppliers of products and services in Nigeria need to improve their operational capabilities and corporate citizenship behaviours, or else risk losing their ability to compete in a changing market place with new barriers to entry.     

Contemporary Economic thought. The Contribution of Neo-Institutional Economics

This article examines the historical developments of the institutionalist theory of the business enterprise since the early 1900s in order to demonstrate its distinctive characteristics that are often overlooked or belittled by some institutional-evolutionary economists and most mainstream economists. I argue that the institutionalist theory is an evolving and emergent theory, which bears a reciprocal, evolutionary, and cumulative relationship between the business enterprise and society. The institutionalist theory is, therefore, suitable for the understanding of the real-world business enterprise as it can be modified and refined along with the evolution of capitalism. The article begins with a discussion of the present state of the institutionalist theory. The following section is devoted to the major contributions to the institutionalist theory situated in the evolution of U.S. capitalism. The penultimate section provides a critical discussion of new institutional and evolutionary approaches to the firm. The article concludes with a brief discussion as to what should be done for the further development of the institutionalist theory of the business enterprise.     

A parametric control function approach to estimating the returns to schooling in the absence of exclusion restrictions: an application to the NLSY

An innovation which bypasses the need for instruments when estimating endogenous treatment effects is identification via conditional second moments. The most general of these approaches is Klein and Vella (J Econom 154:154–164, 2010), which models the conditional variances semiparametrically. While this is attractive, as identification is not reliant on parametric assumptions for variances, the nonparametric aspect of the estimation may discourage practitioners from its use. This paper outlines how the estimator can be implemented parametrically. The use of parametric assumptions is accompanied by a large reduction in computational and programming demands. We illustrate the approach by estimating the return to education using a sample drawn from the National Longitudinal Survey of Youth 1979. Accounting for endogeneity increases the estimate of the return to education from 6.8 to 11.2%.     

Estimating global bank network connectedness

We use LASSO methods to shrink, select, and estimate the high‐dimensional network linking the publicly traded subset of the world's top 150 banks, 2003–2014. We characterize static network connectedness using full‐sample estimation and dynamic network connectedness using rolling‐window estimation. Statically, we find that global bank equity connectedness has a strong geographic component, whereas country sovereign bond connectedness does not. Dynamically, we find that equity connectedness increases during crises, with clear peaks during the Great Financial Crisis and each wave of the subsequent European Debt Crisis, and with movements coming mostly from changes in cross‐country as opposed to within‐country bank linkages.     

The Volatility and Transmission of Equity Returns among the G-7 Countries: the post-Bretton Woods experience

This paper models the volatility of national stock market returns of the G-7 countries using ARCH and GARCH modeling techniques. Then, via the use of vector autoregression analysis, the international transmission of volatility among the countries is explored for the period between April 1973 and July 1990. Variance decompositions are calculated in order to quantify the impacts of volatility shocks in one market on the others. Impulse response functions are used to inspect the dynamic responses of domestic and foreign volatility shocks. Results indicate that volatility transmission among the G-7 countries is the norm in the post-Bretton Woods era. Further, we find that volatility shocks are generally absorbed within six to nine months.     

Consumption, Housing Rents and Housing Price: A Test Of A Real Estate Pricing Model Using Hong Kong Data

The present study investigates whether Hong Kong's volatile real estate market is consistent with a non–linear consumption–based–asset–pricing model. It finds that the asset–pricing model is not rejected for some types of properties. However, the differentials between the returns to residential properties and risk–free rate are too large to be explained by the model.     

Teamwork,Skill Development and Employee Welfare

There has been a sharp divergence in the literature about the benefits of teamwork. Some have claimed that it is solely in the interests of management, others that it is beneficial for employees and yet others that it makes little difference to either productivity or well‐being. This article draws upon the British Skills Survey Series. It shows that while teamwork did expand between the early 1990s and 2006, this was due primarily to the growth of the type of teamwork that allowed employees little in the way of decision‐making power. Indeed, there was a decrease in the prevalence of self‐directive teamwork. At the same time, our evidence shows that the benefits of teamwork, in terms of both enhancing work motivation and employee welfare, are confined to self‐directive teams, while non‐self‐directive teams suppress the use of personal initiative and discretion at work.