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ability bias problem. B

ability bias problem. B

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
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5. Consider the empirical estimation of the returns to schooling in the equation w; = α + psi + ɛi (where w = Inw and s represents the years of schooling of individuals i). (a) Describe the ability bias problem. Briefly discuss how instrumental variable techniques could overcome ability bias. Carefully state the assumptions of the IV estimator and provide one example of instrument used in the literature. (b) Suppose that, besides the years of schooling, you can observe some measures of the indi- vidual's ability, such as results from an IQ test. You decide to include this measure in the OLS wage regression above. Explain whether and how this strategy can solve the ability bias problem. Would you recommend that IQ tests are used as instrument for schooling? Why or why not?
Transcribed Image Text:5. Consider the empirical estimation of the returns to schooling in the equation w; = α + psi + ɛi (where w = Inw and s represents the years of schooling of individuals i). (a) Describe the ability bias problem. Briefly discuss how instrumental variable techniques could overcome ability bias. Carefully state the assumptions of the IV estimator and provide one example of instrument used in the literature. (b) Suppose that, besides the years of schooling, you can observe some measures of the indi- vidual's ability, such as results from an IQ test. You decide to include this measure in the OLS wage regression above. Explain whether and how this strategy can solve the ability bias problem. Would you recommend that IQ tests are used as instrument for schooling? Why or why not?
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