Problem Set 3 Economic Development

# Problem Set 3 Economic Development - EEP 151 UC Berkeley...

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EEP 151 UC Berkeley October 11, 2015 Aprajit Mahajan Problem Set 3 Problem Set 3 This problem set is due Friday, October 30 in Class . 1. Impact Evaluation using Regression Discontinuity Mexico City has a very large public school system, which accepts about 300 , 000 stu- dents each year. Within that system 16 high schools affiliated with the Instituto Politc- nico Nacional (IPN) are considered to be elite schools. Many parents and students will probably consider that admission to an elite school promises a more successful ex- perience and higher rewards. This may be true, but there is also a substantial risk, especially for the weaker students, that they may fail in that school. And failing to complete high school – even from an elite school – is likely to be a worse outcome than completing a lower level high school. The purpose of the paper “Flourish or Fail? The Risky Reward of Elite High School Admission in Mexico City” (by Alain de Janvry, Andrew Dustan, and Elisabeth Sadoulet) is to evaluate the rewards and risks of being admitted to one of Mexico City’s elite schools. The identification strategy to enable the estimation of a causal effect is based on the admissions system. This is a system whereby students express their choice (through the selection of 20 schools they would like to attend), take an exam at the end of junior high school, and are admitted in decreasing order from the student with the highest score to the one with the lowest score. Each student is assigned to the most preferred school that has seats available. Consider now the IPN elite schools and all the students that requested admission to these schools. The schools admitted the best students first and then students with descending scores until they filled up all the slots in the schools. Let “cutoff” be the lowest score that they could admit. Students with scores at this level or just above were “barely admitted” while students below this level were “barely rejected” and had to go to a non-elite school. The following table records their dropout rates from high school and for those that did not drop out, their score on the final exam at the end of high school, three years later. (a) Make a graph with the (grade at entrance exam cutoff score for elite school admission) on the horizontal axis and dropout rate on the vertical axis. What is the overall relationship between grade at entrance exam and dropout rate? Does it make sense?

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2 (b) Draw two regression lines (Excel commands: Chart, Add linear trend line in Excel, Display equation on graph) separately for the points above the cutoff score (i.e., for those admitted to the elite schools) and for those below the cut-off score (i.e., not admitted to elite schools). Measure the “discontinuity” that you observe at the limit at the point where students were just admitted, i.e., the vertical difference in the two trend lines evaluated at the cutoff.
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