Econometric Models for Count Data with an Application to the Patents-R & D Relationship

Abstract

This paper focuses on developing and adapting statistical models of counts (nonnegative integers) in the context of panel data and using them to analyze the relationship between patents and R & D expenditures. Since a variety of other economic data come in the form of repeated counts of some individual actions or events, the methodology should have wide applications. The statistical models we develop are applications and generalizations of the Poisson distribution. Two important issues are (i) Given the panel nature of our data, how can we allow for separate persistent individual (fixed or random) effects? (ii) How does one introduce the equivalent of disturbances-in-the-equation into the analysis of Poisson and other discrete probability functions? The first problem is solved by conditioning on the total sum of outcomes over the observed years, while the second problem is solved by introducing an additional source of randomness, allowing the Poisson parameter to be itself randomly distributed, and compounding the two distributions. Lastly, we develop a test statistic for the presence of serial correlation when fixed effects estimators are used in nonlinear conditional models.