slides_Ch2_W[1]

# Slides_Ch2_W[1]

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

## This note was uploaded on 02/13/2014 for the course ECON 350 taught by Professor Donaldbrown during the Fall '10 term at Yale.

Ask a homework question - tutors are online