A researcher wants to understand the causal effect of schooling on wages. Suppose the research estimates a regression of wages on schooling, controlling for parental education, year of birth, and state of residence. 1. What is this research design called? What assumption does she have to make to interpret the coefficient on schooling as reflecting a causal effect? 2. What could possibly confound a causal interpretation of this relationship? She obtains funding to send college scholarships to different students. They can only get the funding if they enroll in college. She randomizes the amount that the students receive from $0 to $50k per year. She then measures their earnings at age 40. 3 The researcher first estimates the relationship between amount of scholarship and log earnings. log Y = 40123 + 0.0002scholarship Write a sentence that articulates what 0.0002 represents.
A researcher wants to understand the causal effect of schooling on wages. Suppose the research estimates a regression of wages on schooling, controlling for parental education, year of birth, and state of residence.
1. What is this research design called? What assumption does she have to make to interpret the coefficient on schooling as reflecting a causal effect?
2. What could possibly confound a causal interpretation of this relationship?
She obtains funding to send college scholarships to different students. They can only get the funding if they enroll in college. She randomizes the amount that the students receive from $0 to $50k per year. She then measures their earnings at age 40.
3 The researcher first estimates the relationship between amount of scholarship and log earnings.
log Y = 40123 + 0.0002scholarship
Write a sentence that articulates what 0.0002 represents.
4 Write a sentence that articulates the causal interpretation of 0.0002.
5 What is this research design called? What assumption does she have to make to interpret the coefficient
7 on the offered scholarship as causal? Is this assumption reasonable?
6 The research wants to obtain the causal effect of education. She estimates the following relationship:
school = 13.3 + 0.002scholarship
What is the Wald (IV) estimate of the causal effect of schooling on log earnings?
7 What assumption must be true for instrumental variables to return a reliable estimate of the causal effect of schooling. Explain and draw a diagram that depicts the causal chain between scholarship funding and earnings.
8 Describe a possible confounder that would bias the instrumental variables estimate and depict it in a diagram.
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