h_{0}u, t strictly increasing in u for t 0, 1

(27)

The random variable U_{i }represents all unobservable characteristics of individual i. Equation (26) incorporates the idea that the outcome of an individual with U_{i } u will be the same in a given time period, irrespective of group membership. ∙ The distribution of U_{i }is allowed to vary across groups, but not over time within groups, so that

DU_{i}|T_{i}, G_{i} DU_{i}|G_{i}.

(28)

where T_{i }is the time period and

The standard DD model can be expressed in this way, with

h_{0}u, t u t

23

(26)

(29)

assume that

Y_{i}0 h_{0}U_{i}, T_{i},