In the dataset for this assignment, rprice captures the house price in real terms, nearinc is a dummy variable that captures whether the house is located within 3 miles of the incinerator or not, taking the value 1 if it is near it.

Assignment 3

Instructions

You must use STATA and must turn in a copy of your Do-file. The Do-file must perform every task below neatly and correctly.

The work you hand in must be your own. You must NOT copy any answers from anyone or anywhere else. Please review FIU’s policy on academic misconduct for more information.

Questions

We will use a subset of the data from Kiel and McClain (1995) [^a]. Please download the data for this assignment from here ( http://estebanch.com/ECO4421/Week10/incinerator.dta).

The notes for this week specified a simplified version of Kiel and McClain (1995) [^a] that we can use to estimate the impact the incinerator had on house prices located near it.

In the dataset for this assignment, rprice captures the house price in real terms, nearinc is a dummy variable that captures whether the house is located within 3 miles of the incinerator or not, taking the value 1 if it is near it.

1. Run the following two regression models:

rprice1981=β0+β1nearinc+e

rprice1979=δ0+δ1nearinc+u

Report and interpret your results.

2. Calculate the difference-in-difference estimator using β1 and δ1.

Hint: You will need to use scalar variables to access regression coefficient results from the b[] array. Run a regression and run display _b[cons] in STATA. Type help _b in STATA to learn more.

3. Estimate the model:

rprice=β0+β1nearinc+β2y81+δ(y81⋅nearinc)+e

Report and interpret your results.

4. Add the explanatory variables age, age2, rooms, baths, land, and area. Estimate the new model. Report and interpret your results.