ufp_ps4_12

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c) Consider a sharp regression discontinuity design in which Pr { D = 1 | Z } = 0 for all Z < Z o and Pr { D = 1 | Z } = 1 for all Z Z o . How can you estimate the marginal treatment effect at Z o in this case? d) Provide an example of an empirical application which fits into the sharp regression discontinuity design framework. Explain.

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Problem 2: Bidding for a Government Contract (40 percent) Three firms have applied for the franchise to operate cable TV in a city. The annual cost of operating the system is 250. The (inverse) demand curve is given by P = 500 - Q , where P is the price and Q is the number cable subscribers. The firm that wins the right for the franchise can operate as a monopolist for one year. a) Compute the value of the franchise, i.e. compute the monopoly profits of operating the franchise. b) The city government will give the license to the applicant that spends the most money lobbying the city government, i.e. the city uses a pay-all auction considered in class.
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