2. (8 points) A researcher is interested in the effect of more secure property rights on income across countries. He collects recent data from 60 countries and runs the OLS regression Y = a +BX1 + where y, is a country's GDP per capita and X, is an index taking values between 0 and 10 reflecting the protection against expropriation where a higher value indicates greater protection against expropriation, that is, more secure property rights. a. Explain why the OLS estimates are likely to be unreliable and indicate in which direction they might be biased. Justify your answer. b. All of the countries in the researcher's sample were former colonies. Institutions securing property rights could originate from early institutions established alongside European settlements. The decision for Europeans to settle or otherwise could reflect concerns for mortality among settlers. Explain how settler mortality might be used as an instrument to estimate the effect of more secure property rights on income across countries. 2. (8 points) A researcher is interested in the effect of more secure property rights on income across countries. He collects recent data from 60 countries and runs the OLS regression Y = a +BX1 + where y, is a country's GDP per capita and X, is an index taking values between 0 and 10 reflecting the protection against expropriation where a higher value indicates greater protection against expropriation, that is, more secure property rights. a. Explain why the OLS estimates are likely to be unreliable and indicate in which direction they might be biased. Justify your answer. b. All of the countries in the researcher's sample were former colonies. Institutions securing property rights could originate from early institutions established alongside European settlements. The decision for Europeans to settle or otherwise could reflect concerns for mortality among settlers. Explain how settler mortality might be used as an instrument to estimate the effect of more secure property rights on income across countries