Inference for Clustered Data

Abstract

In this article, we introduce clusteff, a community-contributed command for checking the severity of cluster heterogeneity in cluster–robust analyses. Cluster heterogeneity can cause a size distortion leading to underrejection of the null hypothesis. Carter, Schnepel, and Steigerwald (2017, Review of Economics and Statistics 99: 698–709) develop the effective number of clusters to reflect a reduction in the degrees of freedom, thereby mirroring the distortion caused by assuming homogeneous clusters. clusteff generates the effective number of clusters. We provide a decision tree for cluster–robust analysis, demonstrate the use of clusteff, and recommend methods to minimize the size distortion.