ECON 151 Lecture 15: ECON 151 L15
11 Nov 2020
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First stage = education (column 1 and 2) Says that when you live close to a college in 1966, you increase your education by. Reduced form = earnings (column 3 and 4) Says that when you live close to a college in 1966, your earnings increase by. Can be calculated: 1 year of edu = 0. 045/0. 322 0. 14 per year. Good in terms of relevance, first stage is strong. Could be correlated to ability b/c kids farther from home may do worst b/c less connection to family and friends. Iv = efficient tool but if you happen to have a bad iv, you"ll have really bias results. Iv was good for previous example b/c 14% iv better than 7% ols estimate. Families who place strong emphasis on success (both on education and success on labor market) may decide to locate nearby a college. Iv based on 2 characteristics of most education systems.
