Clustered standard errors and multi-level models

Stata allows estimating clustered standard errors in models with fixed effects but not in models random effects? Why is this?

By clustered standard errors, I mean clustering as done by stata's cluster command (and as advocated in Bertrand, Duflo and Mullainathan).

By fixed effects and random effects, I mean varying-intercept. I have not considered varying slope.

• I would consider varying intercept fixed effects, see stata.com/support/faqs/stat/xtreg.html . It probably isn't a bad idea to check out those Stata FAQ's to see if they have anything pertinent to your question as well. Mar 14, 2011 at 23:58
• @Andy The intercept can vary as either a fixed effect or a random effect. In the notation of your link, if it's a fixed effect then $u_i$ is treated as a constant to be estimated from the info within each group, while if it's a random effect it's assumed to have a normal distribution whose mean and variance the model estimates, and you can afterwards get 'predictions' of the individual $u_i$s which use info from all the groups and are closer to their mean than in the fixed effect models due to 'shrinkage'. Mar 15, 2011 at 9:45