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Unformatted text preview: Econ 483 Spring 2009, Final Exam, June 9, 2009, 08:30&10:20 You have 110 minutes. Total score is 80. Points are indicated in the [square brackets]. Questions that need to be answered are written in bold . Name: The &nal exam is an OPEN BOOK ¡ NOTE exam. Feel free to bring your class notes, handouts, and books. You may use a calculator. You are NOT allowed to use a computer or internet. [25 points] 1. This question is a simpli&ed version of Kiel and McClain (1995), a study of the e/ect of a garbage incinerator¢s location on housing prices. The rumor that a new incinerator would be built in North Andover, MA, began after 1978, and construction began in 1981. The incinerator was expected to be in operation soon after the start of construction; the incinerator actually began operating in 1985. We will use data on prices of houses that sold in 1978 and another sample on those that sold in 1981. The hypothesis is that the price of houses located near the incinerator would fall relative to the price of more distant houses. [4] (1) Our goal is to estimate of the causal e/ect of a garbage incinerator¢s location on housing prices. De&ne an indicator variable nearinc which equals to one if the house is near the incinerator (within 3 miles), and zero otherwise. Consider the model, log ( price ) = & + & 1 y 81+ ¡ nearinc + ¡ 1 y 81 & nearinc + u . If building the incinerator reduces the value of homes closer to the site, what is the sign of ¡ 1 ? Carefully explain what ¡ 1 measures. [2] (2) What does it mean if ¡ > ? [4] (3) Now we control for the age of the houses, using a quadratic: age and age 2 . What is an advantage of estimating this model with age and age 2 compared to the model in (1)? 1 Use the STATA results to answer (4)(6). [5] (4) The coe¢ cient on nearinc is negative and statistically signi&cant in (1) but not in part (3). Why do you think this is the case? Provide some evidence. [5] (5) In addition to the age of the houses, add log distance to the interstate in feet, log ( intst ) , log land area in feet, log ( land ) , log house area in feet, log ( area ) , number of rooms, rooms , and number of baths, baths . Discuss whether building the incinerator reduces the value of homes closer to the...
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This note was uploaded on 04/04/2011 for the course ECON 401 taught by Professor Staff during the Spring '08 term at University of Washington.
 Spring '08
 Staff
 Macroeconomics

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