psvi140a

psvi140a - University of California Department of Economics...

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University of California D. Steigerwald Department of Economics Economics 140A Problem Set VI 1. You wish to analyze (personal) health care expenditures as a function of income and health status. From a national health survey of n individuals you obtain t S : health care expenditures for individual t in 1997 (the dependent variable) t Y : wage and salary income for individual t in 1997 t H : health status for individual t in 1997, where ï î ï í ì = health poor in are they believes individual the if 1 health average in are they believes individual the if 2 health excellent in are they believes individual the if 3 H t . a) What is the best way to include health status in the regression model? What is the best functional form for the model? How would you interpret the coefficients? b) Suppose that health care expenditures also depend upon t M , which is the number of doctors employed in the metropolitan area in which individual t lives. If t M is excluded from the model, how are the OLS coefficient estimators affected. c) Suppose, instead, that wage and salary income is measured with error. How are the OLS coefficient estimators affected? How might we correct for measurement error? Under what circumstances would the corrected estimator outperform the OLS estimator? d)
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This note was uploaded on 12/26/2011 for the course ECON 140a taught by Professor Staff during the Fall '08 term at UCSB.

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psvi140a - University of California Department of Economics...

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