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Is it possibleto conclude that a patientweighing 51 kg is likelyto spend at least INR 1000 more than a patient weighing 50kg at 5% significance. Hint: Two considerations: Consideryour model is ??????????? ????????? = ?0 + ?1??????????. Then, substitute first 50 and then 51 into the model, and measure the difference between the dependent variables corresponding to each substitution and equate it to 1000. Using the ?0 from the regression runs, you can find the critical ?1 value. Based on this critical value, write down the null hypothesis and the alternative hypothesis. You need to revisit how to test ahypothesis using class notes and possibly resort to your notes from the prerequisite class (intro to statistics).

6. Consider Baumo] and Klevoriclt's model of rate of return regulation, with the added complication that revenue is uncertain. In particular, in addition to the usual assumptions of the model, the timing of the rm's decision is: 1. The rm chooses capital K. 2. The random variable a is revealed, which is added to the prot function: tt:{L,K,u) = R - wt. - rK + u. Assume E(u} = II]. For the sake of graphs, you may assume a has a two-point distribution {the "good\" outcome and "bad\" outcome}. 3. The rm chooses lahorL and pricep. Assume the rm is risk neutral, and that in the had outcome prot is low enough that the RIDE. constraint does not bind. The regulator requires that the RIDE constraint he met as post, not just ex ante. Your proofs may be graphical or mathematical, with highest credit going toward complete mathematical arguments. a} Defme L'(K,a} to he the optimal labor to use after I is chosen and uncertainty is revealed. Illustrate the concentrated prot inction n'{L'(K,u}, Km} and the regulatory constraint. h} 1|i'tt'ill the rm earn the allowed ROE on average? c} State the Averch Johnson (ta-J} effect. Does the AI effect still hold in this model {ex ante and export}? d} 1|Will the regulated rm use more or less capital than an unregulated rm'? Section A 1. This question deals with Chevalier and Ellison, "Risk Taking by Mutual Funds as a Response to Incentives" (1997, JP), Chevalier and Ellison, "Career Concerns of Mutual Fund Managers" (1999, Q/E), Hubbard, "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market" (1998, RAND) and Ferrall and Shearer, "Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records" (1999, ReStud). (a) For Chevalier and Ellison (1997), discuss carefully what the empirical setting is and what their main research question is. Also, describe their data set and empirical strategy. (b) For Chevalier and Ellison (1999), explain why the (implicit) incentive structure for younger managers and that for older managers may differ? What are their empirical findings? Compare this paper (1999) with the previous one (1997). What are their similarities? What are the differences? (c) For Hubbard (1998), discuss carefully what the empirical setting is and what his main research question is. Also, describe the data set and empirical strategy. (d) What are empirical findings of Hubbard (1998)? Compare and contrast this paper with two papers by Chevalier and Ellison (1997, 1999). What do you think can be their common theme? How do they differ in their empirical approaches? (e) For Ferrall and Shearer (1999), discuss carefully what the empirical setting is and what their main research question is. Also, describe their data set and empirical model as fully as you can. (f) Why do you think Ferrall and Shearer (1999) employ a structural approach? Discuss a possibility of using non-structural(reduced-form) approaches as an alternative empirical strategy.2. This question deals with Guerre, Perrigne, and Vuong, "Optimal Nonparametric Estimation of First-Price Auctions" (Econometrica, 2000), Haile and Tamer, "Inference with an Incomplete Model of English Auctions" (JPE, 2003) and Haile, Hong, and Shum, "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions" (2005). Common Assumptions to both (a) and (b): There are A potential bidders. Assume / is exogenous and known. Bidders are symmetric and risk-neutral. Independent Private Values. Each bidder draws her private value v, from a common distribution F(v), which has a support [0, 20). (a) Consider a single-object, first-price sealed-bid auction. Assume there is no reserve price for simplicity. Carefully derive symmetric Bayesian Nash equilibrium bidding strategies, A(v.). (Consider increasing and differentiable strategies only.) (b) Consider a single-object, Milgrom-Weber "button" auction. The seller's value for the object is vo and she wants to maximize her revenue from the auction by setting a reserve price r. Write down the seller's maximization problem and derive a condition for the optimal reserve price ,* from the F.O.C. of the max problem. (c) Describe, as fully as you can, the nonparametric identification result and the two-step nonparametric estimation strategy of GPV (2000). (d) State the two axioms (or behavioral assumptions) of Haile and Tamer (2003) and construct, as fully as you can, the nonparametric (partial) identification result of Haile and Tamer (2003). Discuss the advantages and disadvantages of this incomplete approach. (e) Discuss, in general, the advantages and disadvantages of using structural models when conducting empirical research in auctions. (f) Prove the following theorem from Haile, Hong, and Shum (2005), which is the basis of their nonparametric test of common values. Theorem Under standard assumptions of symmetry, affiliation, nondegeneracy and an additional assumption of exogenous participation, w(x, x, ") is invariant to a for all x in a PV model, but strictly decreasing in a for all x in a CV model, where v(x, x', n) = E[V;| X, = x,max X, = x'].Question 3 (a) Discuss the logit demand model. In particular, discuss the assumptions underlying the model and the data needed to estimate the model. (b) The next few questions deal with Berry, Levinsohn and Pakes (Econometrica 1995) which estimates a model partially based on the logit demand model. Discuss the empirical setting of the model and the data. (c) In which direction would you want to extend the demand model? What other data would you need? Can you "sign" the bias present in the simpler BLP model? (c) Discuss the major differences between BLP and a "standard" logit demand model as well as any issues/weaknesses with the standard model that BLP seek to address. In doing so, discuss Knittel and Metaxoglou. (d) Give a brief overview of BLP's estimation strategy. That is, outline the steps you would take to estimate a BLP model. Given the nature of their data are there additional hurdles that the authors must overcome? Discuss their results. (e) Suppose you wanted to use the results from a BLP demand model to simulate the outcome of a merger. How would this be done? Question 4 A recent paper seeks to understand how "suggested" prices affect competitive behavior. The background is as follows: In the Dutch gasoline market refiners (wholesalers) post "suggested" prices for gasoline retailers. These prices vary by location and time. The paper argues that these suggested prices facilitate tacit collusion. The paper has daily data on retail prices and suggested prices over a two-year period. (a) Discuss the theoretical argument of why suggested prices may influence competition. b) What empirical information would you provide as initial evidence that is consistent with the theoretical argument? Obviously, I am not asking what they provide, but rather what your first step would be to support this argument. (c) What other data sources would you want to include in the analysis? Explain why. (d) Suppose you regressed the change in the retail price on the change in the suggested price and found a positive and statistically significant effect. Is this enough to conclude that suggested prices facilitate collusion? Why or why not.Section A 1. This question deals with Chevalier and Ellison, "Risk Taking by Mutual Funds as a Response to Incentives" (1997, JPE), Chevalier and Ellison, "Career Concerns of Mutual Fund Managers" (1999, Q/E), Hubbard, "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market" (1998, RAND) and Ferrall and Shearer, "Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records" (1999, ReStud). (a) For Chevalier and Ellison (1997), discuss carefully what the empirical setting is and what their main research question is. Also, describe their data set and empirical strategy. (b) For Chevalier and Ellison (1999), explain why the (implicit) incentive structure for younger managers and that for older managers may differ? What are their empirical findings? Compare this paper (1999) with the previous one (1997). What are their similarities? What are the differences? (c) For Hubbard (1998), discuss carefully what the empirical setting is and what his main research question is. Also, describe the data set and empirical strategy. (d) What are empirical findings of Hubbard (1998)? Compare and contrast this paper with two papers by Chevalier and Ellison (1997, 1999). What do you think can be their common theme? How do they differ in their empirical approaches? (e) For Ferrall and Shearer (1999), discuss carefully what the empirical setting is and what their main research question is. Also, describe their data set and empirical model as fully as you can. (f) Why do you think Ferrall and Shearer (1999) employ a structural approach? Discuss a possibility of using non-structural(reduced-form) approaches as an alternative empirical strategy