1. (i) We find the estimated equation when afchnge is dropped from (13.13) is

Log(durat) = 1.129 +.253 highearn + .198 afchnge # highearn

(0.022) (.042) (.052)

N=5,626; R²=.021

Is it surprising that the estimate on the interaction is fairly close to that in (13.13)? Explain.

(ii) When afchnge is included but highearn is dropped, the result is

Log(durat) = 1.233 - .100 afchnge + .447 afchnge # highearn

(0.023) (.040) (.050)

N=5,626; R²=.016

Why is the coefficient on the interaction term now so much larger than in (13.13)? [Hint: In equation (13.10), what is the assumption being made about the treatment and control groups if ?]