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Unformatted text preview: i j i j j i i i u Seas Ice ice Quantity + + + + = = + 12 1 , 2 2 1 ) ln(Pr ) ln( Based on this regression output, interpret the coefficient of Price and give a 95% confidence interval for it. So what do you conclude about the elasticity of demand for rail transport of grain based on this regression output? (i.e. summarize your result). b) Explain why the interaction of supply and demand could make the OLS estimator of the elasticity of demand biased. c) Explain why the variable Cartel (= 1 railroad cartel is operative, = 0 otherwise) is a valid instrument for ln( Price ) in the regression model in a). Is it a weak instrument? d) Estimate the regression model in a) using Cartel as an instrumental variable for ln( Price ). Compare the results to those found in a) using OLS. e) Can you test the exogenity assumption for the instrument using the model in (f)? Give reasons for your answer....
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- Spring '10