Within and between Estimates in Random-Effects Models: Advantages and Drawbacks of Correlated Random Effects and Hybrid Models

Correlated random-effects (Mundlak, 1978, Econometrica 46: 69–85; Wooldridge, 2010, Econometric Analysis of Cross Section and Panel Data MIT Press) and hybrid models (Allison, 2009, Fixed Effects Regression Models Sage) are attractive alternatives to standard random-effects and fixed-effects models because they provide within estimates of level 1 variables and allow for the inclusion of level 2 variables. I discuss these models, give estimation examples, and address some complications that arise when interaction effects are included.