  Suppose a researcher observes individuals within a county within a state.
Given concerns about correlation across individuals, it is common to group
observations into clusters and conduct inference treating observations across
clusters as roughly independent. However, a researcher that has chosen to
cluster at the county level may be unsure of their decision, given knowledge
that observations are independent across states. This paper proposes a modified
randomization test as a robustness check for the chosen level of clustering in
a linear regression setting. Existing tests require either the number of states
or number of counties to be large. Our method is designed for settings with few
states and few counties. While the method is conservative, it has competitive
power in settings that may be relevant to empirical work.

Econometrics