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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Lecture 24 Supplement (Chapter 16)
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-2 Example: Production Functions Note: the French firm panel is balanced. A balanced panel includes observations for every firm in every time period. An unbalanced panel would include firms that entered or exited the data in the middle of the period. For example, a firm might exit the data because it went out of business.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-3 Example: Production Functions (cont.) Some data sets are naturally balanced. Some researchers choose to balance their panels artificially by discarding firms that are not present in every time period. This procedure is inefficient: it discards useful data. Much worse, artificially balancing panels can introduce severe biases.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-4 Example: Production Functions (cont.) Firms that are more productive (for unobserved reasons) are more likely to stay in business. Such firms also tend to enjoy higher marginal benefits from capital, so they choose to invest in higher capital levels. Unobserved productivity leads to omitted variables bias.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-5 Example: Production Functions (cont.) When we artificially balance a panel, we select firms that are particularly productive (and that tend to have higher capital levels). This sample selection bias can greatly exacerbate the omitted variables bias, depending on how much entry and exit is occurring during the period.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-6 Example: Production Functions (cont.) Olley and Pakes (Econometrica 1996) examined US telecommunications equipment manufacturers from 1974–1987. In this period there was a great deal of entry and exit. The balanced panel has 896 observations. The unbalanced panel has 2,592 observations.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-7 Example: Production Functions (cont.) Olley and Pakes compare the estimated coefficient on capital when they: 1.Use fixed effects on a balanced panel, 2.Use FE on the full dataset, and 3.Use advanced techniques to estimate the unobserved productivity and control for it. Balanced Panel FE: Full Data FE: No-OVB: to 0.355
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 24S-8 Example: Production Functions (cont.) The balanced panel creates a large bias. Simply moving from a balanced panel to an unbalanced panel doubles the estimated capital coefficient. However, unobserved productivity that varies over time (and is thus not controlled by fixed effects) continue to bias the estimate in this sample. Eliminating OVB doubles the estimate.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Lecture 23 Supplement: Local Average Treatment Effects (Chapter 15.5)
Chapter 16 Experimental and Panel Data Copyright © 2011 Pearson Addison-Wesley. All rights reserved. Slides by Niels-Hugo Blunch Washington and Lee University.
Introduction Describe what panel data is and the reasons for using it in this format Assess the importance of fixed and random effects Examine the Hausman.
ECONOMIC HYPOTHESIS ILLUSTRATION ABOUT SOFTWARE QUALITY INFLUENCE ON BUSINESS PERFORMANCE Karthik Ramachandran.
Lecture 3-4 Summarizing relationships among variables ©
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 7 Specification: Choosing a Functional Form Copyright © 2011 Pearson Addison-Wesley. All rights reserved. Slides by Niels-Hugo Blunch Washington.
1 Chapter 11: The t Test for Two Related Samples.
Unit 1 Section : Observational and Experimental Studies Observational Study - the researcher merely observes what is happening or what has happened.
The Production Function. The production function is the relationship between the quantity of inputs a firm uses and the quantity of output it produces.
Copyright © 2013, 2009, and 2007, Pearson Education, Inc. Chapter 14 Comparing Groups: Analysis of Variance Methods Section 14.1 One-Way ANOVA: Comparing.
Chapter 10 Risk and Refinements in Capital Budgeting.
The. of and a to in is you that it he was.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Lecture 23: Experiments (Chapter 15.1–15.5)
Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 10 Risk and Refinements in Capital Budgeting.
Copyright © 2010 Pearson Education, Inc. All rights reserved. 6.1 – Slide 1.
Chapter 4 Multiple Regression. 4.1 Introduction The errors are again due to measurement errors in y and errors in the specification of the relationship.
P.V. VISWANATH FOR A FIRST COURSE IN FINANCE 1. 2 Corporations pay taxes on their profits after interest payments are deducted. Thus, interest expense.
© Pearson Education, 2005 Perfect Competition and Monopoly Market Structures LUBS1940: Topic 5.
FIXED EFFECTS REGRESSIONS: WITHIN-GROUPS METHOD The two main approaches to the fitting of models using panel data are known, for reasons that will be explained.
Chapter 5: Supply Section 1. Slide 2 Copyright © Pearson Education, Inc.Chapter 5, Section 1 Objectives 1.Explain the law of supply. 2.Interpret a supply.
Copyright © Cengage Learning. All rights reserved. 8 Tests of Hypotheses Based on a Single Sample.
1 of 30 Copyright © 2013 Pearson Education, Inc. Microeconomics Pindyck/Rubinfeld, 8e. 6.1Firms and Their Production Decisions 6.2Production with One Variable.
Lecture 03.0 Project analysis Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin.
Slides prepared by Thomas Bishop Chapter 11 Controversies in Trade Policy.
Copyright © Cengage Learning. All rights reserved Maximum and Minimum Values.
Experiments and Double Blinding By Veronica Coronado and Olivia Barth.
AGGREGATE DEMAND, AGGREGATE SUPPLY, AND INFLATION Chapter 25 1.
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