Random effects(continued) p If=l. then this is just the fixed effects estimator o If2=0, then this is just the OLS estimator So, the bigger the variance of the unobserved effect. the closer it is to fe The smaller the variance of the unobserved effect. the closer it is to ols Stata will do random effects for us Economics 20- Prof anderson 7Economics 20 - Prof. Anderson 7 Random Effects (continued) If  = 1, then this is just the fixed effects estimator If  = 0, then this is just the OLS estimator So, the bigger the variance of the unobserved effect, the closer it is to FE The smaller the variance of the unobserved effect, the closer it is to OLS Stata will do Random Effects for us