Using a sample from a population of adults, to estimate the effects of education on health, we run the following regression: hypertensioni = a + Beduc₁ + YX¡ + Ei where hypertension is a dummy variable equals one if a person suffers from hypertension and zero otherwise, educ is years of schooling, and X is a vector of demographic variables such as age, gender, and ethnicity. (a) Show that educ in the regression above is likely to be endogenous and discuss the consequences of this on the OLS estimators. (b) Evaluate whether a government policy that requires children to complete twelve years of schooling is good instru al variable for adu

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Using a sample from a population of adults, to estimate the effects of education on
health, we run the following regression:
hypertension, = a + Beduc; + YX¡ + Ei
where hypertension is a dummy variable equals one if a person suffers from
hypertension and zero otherwise, educ is years of schooling, and X is a vector of
demographic variables such as age, gender, and ethnicity.
(a)
Show that educ in the regression above is likely to be endogenous and discuss
the consequences of this on the OLS estimators.
(b)
Evaluate whether a government policy that requires children to complete twelve
years of schooling is a good instrumental variable for educ.
Transcribed Image Text:Using a sample from a population of adults, to estimate the effects of education on health, we run the following regression: hypertension, = a + Beduc; + YX¡ + Ei where hypertension is a dummy variable equals one if a person suffers from hypertension and zero otherwise, educ is years of schooling, and X is a vector of demographic variables such as age, gender, and ethnicity. (a) Show that educ in the regression above is likely to be endogenous and discuss the consequences of this on the OLS estimators. (b) Evaluate whether a government policy that requires children to complete twelve years of schooling is a good instrumental variable for educ.
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