Two small thingsWalter Sosa-EscuderoEcon 471. Applied Econometrics. Spring 2009March 5, 2012Walter Sosa-Escudero Two small thingsLinear vs. QuadraticUnion effect problem: in spite of being statistically significant, isthe quadratic specification economically relevant?Walter Sosa-Escudero Two small thingsThey certainly look different. But the data is so dispersed aroundthis model that the quadratic is not adding too much.Walter Sosa-Escudero Two small thingsHours of studyThe relevant part of the estimated model isP = 0.2056 H − 0.00135 H2+ · · ·Question: for a student already spending 24 per week studying.How much does he/she need to add in order to pass an additionalcourse?We guessed around 6 hours. Let us do it right.Walter Sosa-Escudero Two small thingsIf person studies 24 per week, performance is:P24= 0.2056 24 − 0.00135 242+ · · ·If m per week:Pm= 0.2056 m − 0.00135 m2+ · · ·So we need m such that the person can pass an extra coursePm− P24= 1We are looking for m − 24Walter Sosa-Escudero Two small thingsTo find m we need to solve Pm− P24= 10.2056 m − 0.00135 m2− (0.2056 24 − 0.00135 242) = 1It is the following quadratic equation−0.00135m2+ 0.2056m − 5.1568 = 0The two roots are: 31.66 and 120.6. The first one is in our datarange. So m = 31.66Then31.66 − 24 = 7.66additional hours of study to pass an additional course.Walter Sosa-Escudero Two small thingsUnofficial econometricsWalter Sosa-Escudero Two small thingsWalter Sosa-Escudero Two small thingsSituation: you are hired by university authorities to ‘see what isgoing on’ with Unofficial: is it really going down?Think about an econometric strategy to explore this issue‘Walter Sosa-Escudero Two small