We look at the effect of intracluster correlation on standard procedures in linear regression. The ordinary least squares estimator, , of the coefficient vector performs well in most cases but the usual estimator of cov( ) and procedures based on this such as confidence intervals and hypothesis tests can be seriously misleading. The size of the effect, however, tends to be smaller than the corresponding effect on the variance of an estimated mean in two-stage sampling provided that the cluster sample sizes are approximately equal.