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The Projection Solution to the Incidental Parameter Problem

Andrew Chesher, Adam M. Rosen, Yuanqi Zhang

arXiv 10 Jul 2026 · Econometrics

arXiv:2607.10043 · PDF · DOI · OpenAlex · Extracted main text

Abstract

This paper introduces a new approach to econometric analysis of nonlinear panel data models when the number of observations per observational unit is small. In such models the presence of variables that are constant within, while varying across, units results in an incidental parameter problem. The approach taken in this paper removes these incidental parameters via projection, which produces a correspondence specifying all combinations of observed variables and within-unit-varying unobserved heterogeneity that are achievable by choice of some value of the unit-specific incidental parameters. With unit-specific variables removed, there is no need for assumptions concerning their joint distribution with other variables. The result is an incomplete model which is typically partially identifying. Identified sets are characterized via moment inequalities using tools of random set theory. Examples of application to static and dynamic models with discrete or continuous outcomes using distribution-free restrictions on within-unit-varying unobserved heterogeneity are presented.

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63
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113
in-text mentions
63
distinct cited
4
self-citations
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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1Bonhomme, Stephane (2012) Functional Differencing1.00073100%
2Beresteanu, Arie and Molchanov, Ilya and Molinari, Francesca (2011) Sharp Identification Regions in Models with Convex Moment Predictions1.00063100%
3Chesher, Andrew and Rosen, Adam M (2017) Generalized instrumental variable models self0.9285380%
4Honoré, Bo E and Kyriazidou, Ekaterini (2000) Panel data discrete choice models with lagged dependent variables0.81142100%
5Honoré, Bo E and Muris, Chris and Weidner, Martin (2025) Dynamic ordered panel logit models0.81142100%
6Molchanov, Ilya S (2017) Theory of Random Sets, 2nd Edition0.7547343%
7Lancaster, Tony (2000) The Incidental Parameter Problem Since 19480.73732100%
8Molchanov, Ilya and Molinari, Francesca (2018) Random Sets in Econometrics0.73732100%
9Andrews, Donald W. K. and Shi, Xiaoxia (2017) Inference based on many conditional moment inequalities0.64422100%
10Chernozhukov, Victor and Chetverikov, Denis and Kato, Kengo (2019) Inference on Causal and Structural Parameters Using Many Moment Inequalities0.64422100%

Showing the top 10 of 63 scored citations.