LN+10+-+Fixed+Effects

LN+10+-+Fixed+Effects - Empirical Methods II(API-202...

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Empirical Methods II (API-202) Kennedy School of Government Harvard University 1 Lecture Notes 10 Fixed Effects I – INTRODUCTION Last Class: Introduced the concept of fixed effects in the context of the STAR Experiment o Be sure to revisit the last section of LN9 when studying fixed effects – it is an integral part of the material seen in these lecture notes. Today: o Summary/Review of fixed effects in the context of the STAR Experiment o Example 1: Alcohol Policy And Traffic Fatalities o Example 2: Effect of Head Start Program
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Empirical Methods II (API-202) Kennedy School of Government Harvard University 2 II SUMMARY/REVIEW OF FIXED EFFECTS IN THE CONTEXT OF THE STAR EXPERIMENT For simplicity let’s consider the following model to study the data from the Star Experiment: SR: Scores i = 0 ˆ + 1 ˆ SmallClass i + ˆ i (1) Where SmallClass i = 1 if student in a small class, 0 otherwise Notation : -Define Scores i,j = score of student i in school j -AVEScores j = average score in school j (Star: 11,600 students, 80 schools…ie, j =1,2,…80) -(Restating) Let’s re-write our SR (1) as SR: Scores i,j = 0 ˆ + 1 ˆ SmallClass i,j + ˆ i,j (2) What do we mean by “running a regression with fixed effects”? o Adding to the SR one dummy variable for each school – each dummy variable takes the value of one if the student is from that school. Scores i,j = 0 ˆ + 1 ˆ SmallClass i,j + 1 ˆ D 1 + 2 ˆ D 2 +…+ 79 ˆ D 79 + ˆ i,j (3a) -We call this “adding fixed effect at the school level .” o ( Notation ) For simplicity, we write the SR with fixed effects as:
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This note was uploaded on 04/12/2009 for the course HKS API202A taught by Professor Levy during the Spring '09 term at Harvard.

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LN+10+-+Fixed+Effects - Empirical Methods II(API-202...

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