120_spring08_pset1_solutions

120_spring08_pset1_solutions - ECO 120, Spring 2008 Problem...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ECO 120, Spring 2008 Problem Set 1 Solutions Jon Robinson 1. (a) The t-statistic for c & 0 is 0.814/0.347 = 2.35, which is greater than 2. This means that c & 0 c 1 is 0.126/0.058=2.17. c 1 is (b) The predicted probability is \ malaria = c & 0 + c 1 net (1) so the prediction for someone in a household with a net is \ healthy = c & 0 + c 1 (since net=1 for these people), which is 0.814+.126=0.940. The prediction for someone in a household without a net is \ health = c & 0 (since net=0 for these people), which is 0.814. The di±erence between the 2 groups is c 1 (from part a). (c) Malaria prevalence for people without bednets is 1-0.814=0.186. Prevalence for people with bednets is 1-0.814-0.126=0.06. (d) i. The sign of omitted variable bias is the same as the sign of 2 corr ( net; income ) . ii. We²d probably expect that richer people are less likely to have malaria, because, for instance, they might be able to a±ord anti-malarial drugs or because they might be less likely to have other diseases which would make their immune system vulnerable to malaria. This means that 2 is likely to be positive. We²d also expect that richer people are more likely to own nets, so corr ( net; income ) is likely to be positive. Since 2 is positive and corr ( net; income ) is positive, 2 corr ( net; income ) - the omitted variable bias - is positive. This means that the c 1 we estimated in (1) is too big . In words, what this means is that people with nets are also likely to be richer, and richer people are less likely to have 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
1 might be 0.100, as opposed to the c 1 we estimated. iii. If income had no e/ect on the probability of getting malaria (aside from the fact that richer people are more likely to have nets), then 2 = 0 and there is no omitted variable bias at all (even though corr ( net; income ) 6 = 0 ). iv. One way the omitted variable bias in (ii) could be reversed would be if poorer people were more likely to have mosquito nets than richer people. This could happen if, for instance, the government had started an anti-malaria campaign and had given out nets to the very poorest people. Then corr ( net; income ) might be negative, 2 would still be positive, and so 2 corr ( net; income ) would be negative. In words, poorer people are more likely than richer people to have nets,
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/04/2008 for the course ECON 120 taught by Professor Robinson during the Spring '08 term at UCSC.

Page1 / 11

120_spring08_pset1_solutions - ECO 120, Spring 2008 Problem...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online