Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 5

Use the data in KIELMC.RAW for this exercise.

(i) The variable dist is the distance from each home to the incinerator site, in feet. Consider the model

If building the incinerator reduces the value of homes closer to the site, what is the sign of 81? What does it mean if ft > 0?

(ii) Estimate the model from part (i) and report the results in the usual form. Interpret the coefficient on y81-log(dist). What do you conclude?

(iii) Add age, age2, rooms, baths, log(intst), log(land), and log(area) to the equa¬tion. Now, what do you conclude about the effect of the incinerator on housing values?

(iv) How come the coefficient on log(dist) is positive and statistically significant in part (ii) but not in part (iii)? What does this say about the controls used in part (iii)?

Step 1 of 6

(i)

Consider the model:

Where the variable is the distance from each home to the incinerator site

Given that building the incinerator reduces the value of homes closer to the site, the sign of is expected to be positive, that is >0

If >0, it means that the price of the home increases with the increase in the distance between the home and incinerator site