Hello!
I'm trying my hand at multilevel modeling during my master's dissertation. I have three levels: firms, industries, regions. I'm having the issue of many of my firms having multiple activities. As an example, some firms that do sea transportation and fishing, or even sea transportation and garbage removal, or selling plants and repairing cars etc. I didn't think of this issue in the beginning. Is it possible for the observations (firms) to belong to several level 2 variables? What solutions are available to me? I could always just delete their other activities and only take into consideration the first activity they provide, but that feels like a last resort kind of solution.
Thank you!
Youssouf Merouani I would suggest to use fixed effects to account/control for form with multiple activities (one fixed effect for each activity) so some firms will have one or more than one fixed effect. Erasing activities is a bad idea, you will get biased results. Grouping activites, on the other hand, may help and may reduce the potential multicollinearity problems introduce by including (too many) fixed effects.
The most efficient way to tackle this is non-hierarchical random effects models - cross classifications and multiple membership models:
see structures at
http://www.bristol.ac.uk/cmm/software/mlwin/mlwin-resources.html#mlmbkgrd
and model specifics at
http://www.bristol.ac.uk/cmm/software/mlwin/mlwin-resources.html#nonhier
Random effects have many advantages over fixed effects, one important one is that you additionally include measured variables :
Article Fixed and Random effects models: making an informed choice
Rolando Gonzales and Kelvyn Jones thank you for your answers! I too thought that working with only one activity would ruin the analysis. However, I wasn't sure if it was even possible for lower level variables to belong to multiple higher-level groups. But I found out that it exists and is called, just like Kelvyn Jones says "multiple membership models". I found the Bristol university online course this morning. Now I found that I have the issue of how to weigh these activities, but I’ll try following the documentation and hope Ill be able to do this.
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