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P Set 8 - Problem Set 8 MGTECON 603 2009 MGTECON 603...

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Problem Set 8, MGTECON 603, 2009 1 MGTECON 603, Econometrics I Jules H. van Binsbergen Fall 2009 Stanford GSB PROBLEM SET 8 Due: Monday December 7 th This problem set is to be done on the computer. I would prefer you use MATLAB but you can use any statistical package that you want, as long as you program in the steps required yourself (i.e., don’t use a canned routine written by someone else except to maximize the likelihood function). Before starting this problem set you will need to download the data file from the course web site. The data file is entry data for Southwest airlines. The data consist of a cross section of markets to which Southwest is a potential entrant (that is, they already fly to one endpoint in the city pair). The variables are noted in the data file and include whether or not Southwest entered that market, as well as several market variables. (Note that this is real data, but you might get strange results anyway.) Consider the following model. If Southwest enters a given market i , it receives profits given by π i = β x i + ǫ i where ǫ i is N (0 , 1) and independent across markets i , and β is an unknown parameter vector.
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