slides_Ch2_W[1]

Slides_Ch2_W[1]

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Unformatted text preview: conometrics 71 / 93 Failure of SLR.2: An Example (Q.2.b) We start by writing out E [U jX = 1] to explore what ZCMA imposes on the underlying parameters (µA , µB , pA , pB ): E [U jX = 1] = E [U jX = 1, A] Pr (AjX = 1) +E [U jX = 1, B ] Pr (B jX = 1) Pr (X = 1jA) Pr (A) = E [U jA] Pr (X = 1) Pr (X = 1jB ) Pr (B ) +E [U jB ] Pr (X = 1) pA fA p ( 1 fA ) = µA + µB B Pr (X = 1) Pr (X = 1) Melissa Tartari (Yale) Econometrics (9) 72 / 93 Failure of SLR.2: An Example (Q.2.b) We start by writing out E [U jX = 1] to explore what ZCMA imposes on the underlying parameters (µA , µB , pA , pB ): E [U jX = 1] = E [U jX = 1, A] Pr (AjX = 1) +E [U jX = 1, B ] Pr (B jX = 1) Pr (X = 1jA) Pr (A) = E [U jA] Pr (X = 1) Pr (X = 1jB ) Pr (B ) +E [U jB ] Pr (X = 1) pA fA p ( 1 fA ) = µA + µB B Pr (X = 1) Pr (X = 1) (9) And similarly, E [U jX = 0] = µA Melissa Tartari (Yale) (1 pA ) fA (1 + µB 1 Pr (X = 1) 1 Econometrics pB ) (1 fA ) . Pr (X = 1) (10) 72 / 93 Failure of SLR.2: An Example (Q.2.b) The question is: what does E [U jX = 1] = E [U jX = 0] imply for (µA , µB , pA , pB )? Melissa Tartari (Yale) Econometrics 73 / 93 Failure of SLR.2: An Example (Q.2.b) The question is: what does E [U jX = 1] = E [U jX = 0] imply for (µA , µB , pA , pB )? Before answering that question we need to take care of a little issue: we need to impose the normalization E [U ] = 0. Melissa Tartari (Yale) Econometrics 73 / 93 Failure of SLR.2: An Example (Q.2.b) The question is: what does E [U jX = 1] = E [U jX = 0] imply for (µA , µB , pA , pB )? Before answering that question we need to take care of a little issue: we need to impose the normalization E [U ] = 0. Recall E [U ] = E [U jA] Pr (A) + E [U jB ] Pr (B ) = µ A fA + µ B ( 1 Melissa Tartari (Yale) Econometrics fA ) 73 / 93 Failure of SLR.2: An Example (Q.2.b) The question is: what does E [U jX = 1] = E [U jX = 0] imply for (µA , µB , pA , pB )? Before answering that question we need to take care of a little issue: we need to impose the normalizatio...
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This note was uploaded on 02/13/2014 for the course ECON 350 taught by Professor Donaldbrown during the Fall '10 term at Yale.

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