ecm06-hw2-solutions - ECN 140/ Winter 06 Econometrics...

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ECN 140/ Winter 06 1 Econometrics ASSIGNMENT 2 100 POINTS TOTAL DUE: Monday, February 20, by 10:30 a.m. **IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED – NO EXCEPTIONS** Note 1 : Questions 4, 5, 8 & 9 are computer-assisted assignments. The data needed is available on either the course folder in the DSS lab or the on the course webpage/website. Recall that one of the main objectives of this course is to get you comfortable with data. Partial solutions to Questions 4, 5, 8 & 9 are given here. However, do make an effort to answer the problems without referring to the solution keys initially. All output printouts from the computer-assisted assignments 4, 5, 8 & 9 must be attached to the final answers that you plan to hand in for credit. Please refer to the Division of Social Sciences Computer Lab’s website at http://dsslab.ucdavis.edu/ for the free time periods available for you to do your computer assignments. Note 2 : Please hand in your assignment to the TA’s office (SSH 111). If the TA is not in, please slip your hand-ins under the door. The unusual date, time and place are to accommodate you for your Midterm. Solution keys will be posted on the course website by 1pm on the same day. Note 3: Bold letters in the various equations below signify estimated values. 1.[18] The medium starting salary for new law school graduates is determined by log(salary) = β 0 + β 1 LSAT + β 2 GPA + β 3 log(libvol) + β 4 log(cost) + β 5 rank + u, where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA for the class, libvol is the number of volumes in the law school library, cost is the annual cost of attending law school, and rank is a law school ranking (with rank = 1 being the best). (i) Explain why we expect β 5 0. (ii) What signs do you expect for the other slope parameters? Justify your answers. (iii) Using the data in LAWSCH85.RAW, the estimated equation is log(salary) = 8.34 + 0.0047 LSAT + 0.248 GPA + 0.095 log(libvol) + 0.038 log(cost) – 0.0033 rank n = 136, R 2 = 0.842. What is the predicted ceteris paribus difference in salary for schools with a median GPA different by one point? (Report your answer as a percentage.) (iv) Interpret the coefficient on the variable log(libvol). (v) Would you say it is better to attend a higher ranked law school? How much is a difference in ranking of 20 worth in term of predicted starting salary?
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ECN 140/ Winter 06 2 (i) A larger rank for a law school means that the school has less prestige; this lowers starting salaries. For example, a rank of 100 means there are 99 schools thought to be better. (ii) 1 β > 0, 2 > 0. Both LSAT and GPA are measures of the quality of the entering class. No matter where better students attend law school, we expect them to earn more, on average. 3 , 4 > 0. The number of volumes in the law library and the tuition cost are both measures of the school quality. (Cost is less obvious than library volumes, but should reflect quality of the faculty, physical plant, and so on.) (iii) This is just the coefficient on GPA , multiplied by 100: 24.8%.
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This note was uploaded on 08/27/2011 for the course ECON 7043 taught by Professor Projim during the Three '11 term at University of Adelaide.

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ecm06-hw2-solutions - ECN 140/ Winter 06 Econometrics...

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