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Econ 306
Professor Goldstein
3/1/16
Homework 3
100 points
Open this dataset within STATA. Before you begin answering the
following, its not a bad idea to ask STATA to summarize the data using
the command summarize. You should also start a log file to store your
results.
Price 0 1 *beds
a. Run the following regression:
b. Hypothesize the sign of the bias, if any, resulting from excluding
sqft from the regression. Explain your reasoning.
c. Use the data to verify (or not) your claim from b). Break down the
bias into the component pieces as we did in class.
d. You will see from c. that the effect of beds is negative, once we
control for square footage. Does this make sense?
R^2=.7118
Now change the measurement of price. Use the gen command:
gen price_thous=price/1000
and then use this in place of price in the regression command for
part e
According to the economic model of crime rates, lower crime rates are
associated with better labor markets (higher wages), more police
presence and tougher sentences, and lower population density. We will
use this data set to examine these hypotheses. Use a significance
level of =.05 for all hypothesis tests. All of the following
regressions will utilize the following subset of variables from
this dataset.
crmrte=crime rate
prbarr=probability of arrest
prbconv=probability of conviction
prbpris=probability of a prison sentence
avgsen=average sentence in days
polpc=number of police per capita
density=population density
pctmin=percent minority
taxpc=tax revenue per capita
wmfg=average weekly wage in manufacturing
wcon=average weekly wage in construction
wtuc=average weekly wage in transportation,utilities,and
communications
wtrd=average weekly wage in wholesale and retail trade
wfir=average weekly wage in finance,insurance,and real estate
wser=average weekly wage in services
wfed=average weekly wage in federal government
wsta=average weekly wage in state government
wloc=average weekly wage in local government
d. Test the hypothesis that the coefficients on wsta and wloc are equal
to each other. Use the t-test method described in the lectures.
What transformation do you need to do here? Be specific.
e. Test the hypothesis that the coefficients on wfed, wsta and wloc are
all equal to each other. Do this by writing down the formula for the
relevant F-statistic. Calculate it (by running the appropriate
restricted regression) and test the hypothesis. Report these results.
This restricted version of the regression will be called Model 2.
h. Now that you have this probability, use it to go one step further and
write down the formula for the EXPECTED jail sentence if a person
commits a crime. [You will need to use the information about
average sentence.] Use this formula to create a new variable in
STATA called jailtime_ifcrime.