hw3_answer_econ120b_w08 - Economics 120B Professor Yongil...

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Economics 120B Name: _________________________ Professor Yongil Jeon Winter 2008 Student ID#: _________________________ Homework #3, Winter 2008 (Part of Exam 2, Summer 2006) Answer all questions on separate paper. This problem set should be handed in to your TA at the beginning of the discussion section on March 7, 2008 (Friday). Problem sets may not be handed in once solutions have been distributed. Please write down your name and PID clearly. Good luck! 1. (10 points) Evaluate the following statement: “In all of the regressions, the coefficient on Female is negative, large, and statistically significant. This provides strong statistical evidence of gender discrimination in the U.S. labor market.” Answer In isolation, these results do imply gender discrimination. Gender discrimination means that two workers, identical in every way but gender, are paid different wages. It is also important to control for characteristics of the workers that may affect their productivity (education, years of experience, etc). If these characteristics are systematically different between men and women, then they may be responsible for the difference in mean wages. These are potentially important omitted variable in the regression that will lead to bias in the OLS coefficient estimator for Female. Since these characteristics were not controlled for in the statistical analysis, it is premature to reach a conclusion about gender discrimination. 2. (10 points) A “Cobb-Douglas” production function relates Production (Q) to factors of production, capital (K), labor (L), and raw materials (M), and an error term u using the question u e M L K Q 3 2 1 β λ = , where 2 1 , , and 3 are production parameters. Suppose you have data on production and the factors of production from a random sample of firms with the same Cobb Douglas production function. How would you use regression analysis to estimate the production parameters? Answer Taking logarithm of both sides of the equation yields ( ) ( ) ( ) u M L K Q + + + + = ln ln ln ) ln( 3 2 1 0 where () ln 0 = . The production function parameters can be estimated by regression the logarithm of production on the logarithms of capital, labor, and raw materials.
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2 Answer to HW #3, ECON 120B, Winter 2008 2 3 (55 points) The median starting salary for new law school graduates (over 136 different schools) is determined by u rank t libvol GPA LSAT salary + + + + + + = 5 4 3 2 1 0 ) ln(cos ) ln( ) ln( β where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA for the class, libvol is the number of volumes in the law school library, cost is the annual cost of attending law school, and rank is a law school ranking (with rank=1 being the best). The estimated equation is as follows
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This homework help was uploaded on 04/15/2008 for the course ECON 120B taught by Professor Jeon during the Winter '08 term at UCSD.

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hw3_answer_econ120b_w08 - Economics 120B Professor Yongil...

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