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regression model that contains the difference-in-difference estimator (with additional
regressors). Explain the circumstances under which this model is preferable to the simple difference-indifference estimator. Explain how the W's can be used to test for randomization. How does the interpretation
of the W variables change compared to the differences estimator with additional regressors? 8. Let the vertical axis of a figure indicate the average employment fast food restaurants. There are two time
periods, t = 1 and t = 2, where time period is measured on the horizontal axis. The following table presents
average employment levels per restaurant for New Jersey (the treatment group) and Eastern Pennsylvania (the
FTE Employment before
FTE Employment after PA
21.03 Enter the four points in the figure and label them Y treatment ,before , Y treatment ,after , Y control,before , and
Y control,after . Connect the points. Finally calculate and indicate the value for β1diffs− in − diffs . €
€ € € € 9. The New Jersey-Pennsylvania study on the effect of minimum wages on employment mentioned in your
textbook used a comparison in means "before" and "after" analysis. The difference-in-difference estimate
turned out to be 2.76 with a standard error of 1.36.
The authors also used a difference-in-differences estimator with additional regressors of the type ΔYi = β 0 + β1 X i + β 2W1i + … + β1+ rW ri + u i , i = 1, 2,… , n € where i = 1, …, 410. X is a binary variable taking on the value one for the 331 observations in New
Jersey. Since the authors looked at Burger King, KFC, Wendy's, and Roy Rogers fast food
restaurants and the restaurant could be company owned, four W-variables were added.
c. Given that there are four chains and the possibility of a company ownership, why did the authors not
include five W-variables?
OLS estimation resulted in β1 of 2.30 with a standard error of 1.20. Test for statistical significance
and specify the alternative hypothesis.
Why is this estimate different from the number calculated from Δ Y treatment – Δ Y control = 2.76? What
is the advantage of employing this estimator of the simple difference-in-difference estimator?
10. You want to study whether or not the use of computers in the classroom for elementary students has an effect
on performance. Explain in some detail how you would ideally set up such an experiment and what threats to
internal and external validity there might be.
11. Describe the major differences between a randomized controlled experiment and a quasi-experiment....
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- Winter '13