11) Suppose, we are interested in the impact of schooling on earnings. Our regression equation is earnings = Bo± ß1 schooling + e Our parameter of interest is ß1. However, running a simple OLS regression using observational data like this might lead to biased estimation of returns to schooling because of different confounding factors (schooling is endogenous. i.e., there might be omitted variables that are correlated to schooling which lead to omitted variable bias). Now, we plan to use instrumental variable method to estimate the returns to schooling (impact of schooling on earnings). For that purpose, we need to have another variable that can be used as an instrument of the endogenous variable schooling. a) Someone suggests that we can use mother's education as an instrument for schooling. Do you think mother's education is a good and valid instrument for schooling? Explain your reasoning. b) Another person suggests using 'distance from home' as an instrument for schooling. Do you think distance from home serves as a valid instrument for schooling? Explain your reasoning.

11) Suppose, we are interested in the impact of schooling on earnings. Our regression equation is earnings = Bo± ß1 schooling + e Our parameter of interest is ß1. However, running a simple OLS regression using observational data like this might lead to biased estimation of returns to schooling because of different confounding factors (schooling is endogenous. i.e., there might be omitted variables that are correlated to schooling which lead to omitted variable bias). Now, we plan to use instrumental variable method to estimate the returns to schooling (impact of schooling on earnings). For that purpose, we need to have another variable that can be used as an instrument of the endogenous variable schooling. a) Someone suggests that we can use mother's education as an instrument for schooling. Do you think mother's education is a good and valid instrument for schooling? Explain your reasoning. b) Another person suggests using 'distance from home' as an instrument for schooling. Do you think distance from home serves as a valid instrument for schooling? Explain your reasoning.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Explain unsolicited mails and communication with children (Ecommerce) in brief. I need to prepare 5-10 minutes presentation for it.
For distract driving
which technology change affect consumer taste
do it with pencil and paper
graph production cost increase and quantity decrease
Imagine you are the mayor of a town and you are trying to decide if you should pay for a fireworks show. Your staff survey your 400 citizens who say that they each value a fireworks show at $10. The fireworks show only costs $3,000 so you put on the show but when you ask for donations to pay for the fireworks you only receive $25 total. What does this result show? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. You staff's survey must have overestimated the value of a fireworks show. b The fireworks cost must have been greater than their economic benefit. The firework show suffered from the Tragedy of the Commons problems d The town's citizens were free-riders.
What is the relevance of a website for a business ? Discuss it with various departmental factors.
difeerent between economic and economic scale
What are the Factors Affecting Consumer Decision Making?
Why do people share content via social media channels? They find it interesting and/or entertaining. They think it can be helpful to others. They want to get a laugh. A & B Only. All of these.
How difficult was it to find the product you wanted?
How HubSpot company managed to increase customers and sale?