Include all relevant Stata output.

1.Use data from the file ps3q2.dta.

In 2008, Goldman and Romley[1]studied hospital demand by analyzing how 8,721 Medicare-covered pneumonia patients chose from among 117 hospitals in the greater Los Angeles area. The authors concluded that clinical quality (as measured by a low pneumonia mortality rate) played a smaller role in hospital choice than did a variety of other factors.

Let's focus on a subset of the Goldman-Romley sample: the 499 patients who chose either the UCLA Medical Center or the nearby Cedars Sinai Medical Center. Typically, economists would expect price to have a major influence on such a choice, but Medicare patients pay roughly the same price no matter what hospital they choose.Instead, factors like the distance the patient lives from the hospital and the age and income of the patient become potentially important factors:

(0.05)(0.036)(0.31)

t =-8.12-2.00-0.94

N = 499iterations = 8

where:1 if theith patient chose Cedars Sinai, 0 if they chose UCLA

the distance from theith patients (according to zip code) to Cedars Sinaiminusthe distance from that point to the UCLA Medical Center (in miles)

the income of theith patient (as measured by the average income of their zip code in thousands of dollars)

1 if theith patient was older than 75, 0 otherwise

a.Create and test appropriate hypotheses about the coefficient of DISTANCE at the 5-percent level. Conduct a 2-sided test; you can use the t-table on the inside front cover of the book.

b.Carefully state the meaning of the estimated coefficient of DISTANCE in terms of the "per mile" impact on the probability of choosing Cedars Sinai Medical Center.

c.Think about the definition of DISTANCE. Why do you think we defined DISTANCE as the difference between the distances as opposed to entering the distance to Cedars and the distance to UCLA as two different independent variables?

d.Using Stata estimate the linear probability model and thelogitversions of this equation. What is the coefficient of DISTANCE in your two estimates? Which model do you prefer? Explain.

e.Now create a slope dummy by adding OLD*DISTANCE to the equation and estimating a new logit equation. Why do you think we're suggesting this particular slope dummy? Create and test the appropriate hypothesis about the slope dummy at the 5-percent level. Which equation do you prefer, the first equation or the new slope dummy logit? Explain.