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

Exercise 10

A simple model to determine the effectiveness of condom usage on reducing sexually transmitted diseases among sexually active high school students is

infrate = ?0 + ?1conuse + ?2percmale + ?3avginc + ?4city + u1,

where

infrate = the percentage of sexually active students who have contracted venereal disease.

conuse = the percentage of boys who claim to regularly use condoms. avginc = average family income.

city = a dummy variable indicating whether a school is in a city.

The model is at the school level.

(i) Interpreting the preceding equation in a causal, ceteris paribus fashion, what should be the sign of ?1 ?

(ii) Why might infrate and conuse be jointly determined?

(iii) If condom usage increases with the rate of venereal disease, so that ?1 > 0 in the equation

conuse = ?0 + ?1infrate + other factors, what is the likely bias in estimating ?1 by OLS?

(iv) Let condis be a binary variable equal to unity if a school has a program to distribute condoms. Explain how this can be used to estimate ?1 (and the other betas) by IV. What do we have to assume about condis in each equation?

Step 1 of 4

Consider the given model:

(i)

In the given model, the sign of should be negative, indicating that with increase in the percentage of boys who claim to use condoms regularly, there would be a decrease in the percentage of sexually active students who have contracted venereal disease, ceteris paribus