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

Exercise 8

The median starting salary for new law school graduates is determined by

log(salary) = ?0 + ?1LSAT + ?2GPA + ?3log(libvol) + ?4log(cost) + ?Srank + u,

where LSAT is the median LSAT score for the graduating class, GPA is the median college GPA for the class, libvol is the number of volumes in the law school library, cost is the annual cost of attending law school, and rank is a law school ranking (with rank = 1 being the best).

(i) Explain why we expect ?5<0.

(ii) What signs do you expect for the other slope parameters? Justify your answers.

(iii) Using the data in LAWSCH85.RAW, the estimated equation is

= 8.34 + .0047 LSAT + .248 GPA + .095 log(libvol) + .038 log(cost) - .0033 rank n = 136, R2 = .842.

What is the predicted ceteris paribus difference in salary for schools with a median GPA different by one point? (Report your answer as a percentage.)

(iv) Interpret the coefficient on the variable log(libvol).

(v) Would you say it is better to attend a higher ranked law school? How much is a difference in ranking of 20 worth in terms of predicted starting salary?

Step 1 of 5

(i).

It is expected that, because a law school with a high rank means that the school’s reputation is less which in turn lowers the starting salaries of the students coming out for placements.

For example, a rank of 99 means that there are 98 schools thought to be better and when , the salary of students from this law school, would be less than the students from other 99 law schools.