## Monday, December 9, 2013

### To Cluster or Not to Cluster - That is the Question

Several very prominent econometricians have fallen on either side of this
question, typically they are concerned that the number of clusters is
small and the size in each cluster is large.  One camp argues that the
only reasonable way of deriving consistent standard errors is through
clustering while the alternative camp argues that clustering does not
have good small sample properties.

In this post I will explore how clustering works given these different
conditions.