Ch 12 extra probs answers

Ch 12 extra probs answers - Econ 120B Solutions to Chapter...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 120B Solutions to Chapter 12 Practice Problems 1. a. Instrumental validity has two components, instrument relevance ( ), and instrument exogeneity ( ). The individual’s postal zip code will certainly be uncorrelated with the omitted variable, ability, even though some zip codes may attract more able individuals. However, this is an example of a weak instrument, since it is also uncorrelated with years of education. 0 ) , ( i i X Z corr 0 ) , ( = i i u Z corr b. There is instrument relevance in this case, since, on average, individuals who do well in intelligence scores or other work related test scores, will have more years of education. Unfortunately there is bound to be a high correlation with the omitted variable ability, since this is what these tests are supposed to measure. c. A non-zero correlation between the mother’s or father’s years of education and the individual’s years of education can be expected. Hence this is a relevant instrument. However, it is not clear that the parent’s years of education are uncorrelated with parent’s ability, which in turn, can be a major determinant of the individual’s ability. If this is the case, then years of education of the mother or father is not a valid instrument. d. There is some evidence that the larger the number of siblings of an individual, the less the number of year of education the individual receives. Hence number of siblings is a relevant instrument. It has been argued that number of siblings is uncorrelated with an individual’s ability. In that case it also represents an exogenous instrument. However, there is the possibility that ability depends on the attention an individual receives from parents, and this attention is shared with other siblings.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern