Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A question on False positives, statistical power, heterogeneity of the treatment effect. see below for etails please Suppose that we have a model of earnings

A question on False positives, statistical power, heterogeneity of the treatment effect. see below for etails please

image text in transcribedimage text in transcribed
Suppose that we have a model of earnings (outcome y) on some human capital Variables X (eg: education, experience) and some variables representing true individual ability Z. y = XB + Zo+ & The modeling challenge lies in the fact that the ability variable is unobserved and we have to omit it from our empirical model. (a) What are the implications of the omitted Z variable on the OLS sample Estimator b? Specifically, derive the expression for E[b]. (5 marks) (b) The expression you derived can be broken up into two components. Point these components out and explain their meaning in the context of our earnings-education-ability example. (5 marks) (c) Denote education as X1, experience as x2 and unobserved ability as x3. Suppose we have a proxy for unobserved ability in the form of an IQ variable, denoted as X3. Explain what happens when we plug IQ into our empirical model. In particular, explain which parameter estimates are unbiased and which ones are biased. (4 marks)(d) Angrist and Krueger (1991) outline an alternative approach estimating the return to education based on an instrumental variables (IV) strategy that considers the introduction of staggered compulsory schooling laws across US states. Explain this IV strategy with reference to the concepts of the exclusion restriction and the relevance condition. (4 marks) (e) Explain the role of the quarter-of-birth variables in Angrist and Krueger (1991). In particular, explain how years of schooling vary with quarter-of-birth. (2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finite Math And Applied Calculus

Authors: Stefan Waner, Steven Costenoble

7th Edition

1337515566, 9781337515566

More Books

Students also viewed these Mathematics questions

Question

Is it fair to categorize ARS 1 and ARS 3 as failures?

Answered: 1 week ago