Paper #1415

Title:

On the inefficiency of the restricted maximum likelihood

Author:

Nicholas Longford

Date:

March 2014

Abstract:

The restricted maximum likelihood is preferred by many to the full maximum likelihood for estimation with variance component and other random coefficient models, because the variance estimator is unbiased. It is shown that this unbiasedness is accompanied in some balanced designs by an inflation of the mean squared error. An estimator of the cluster-level variance that is uniformly more efficient than the full maximum likelihood is derived. Estimators of the variance ratio are also studied.

Keywords:

efficiency, random effects, truncation, variance component.

JEL codes:

Mathematical Sciences Classification: 62F10, 62J10

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