Tutor Marked Assignment 3

Instruction: Work precisely and read carefully. When you perform a hypothesis, provide the
null hypothesis, the value of relevant test statistics, and the conclusion.

Submit the electronic copy of your answer both in word format and stat syntax
(if applicable) on April 10, 2022 (by Sunday 4:00 PM)
1. The mroz.csv dataset contains 753 observations on labor force participation of women. The
variables in this dataset are

:
inlf dummy: 1 if in labor force
nwifeinc family income, excluding wife’s earnings
:
educ years of schooling
exper actual labor market experience in years
:
age woman’s age in years
kidslt6 number of kids less than 6 years old
:

We are interested in modelling the choice of participating in the labor force or not. We consider
the bivariate choice model:
Prob (inlf i = 1) = F (
β 0 + β 1 nwifeinc i + β 2 educ i + β 3 experi + β 4 expersqr 2+ β 5 age i+ β 6 kidlt 6 i+ β7 kidgt 6i ui ¿ where F is a
cumulative density function: standard normal or standard logistic.

a) Estimate the model using OLS robust to heteroskedasticity

b) Estimate a probit and logit models and interpret your result
c) Compute the marginal effects of logit and probit models and interpret the margins of educ and
nwifeinc .
d) Measure goodness of fit using % correctly predicted and Pseudo - R-squared

2. Researchers and policy makers have been wondering the determinants of couples’
contraception decisions and whether family planning (FP) service may encourage people to
use contraception more often. To look into this topic, now we have the household survey data
set from some African country, contra98.dta, which contains information on respondents’
contraception practice, educational background, access to public family planning service, etc.
More specifically, the variable contra records 1 if the interviewed couple are currently using
modern contraception device (e.g., pills, condoms, and injectables), 2 if using traditional
contraception practice (e.g., herbs with anti-fertility property and abstinence), and 3 if not
using any contraception measures at all
 Education-related dummy variables, educ0,edu16, edu7 and edu8p, records female
respondents’ education level. Age-related variables categorize female respondents into
different age groups, as suggested by the variable names. Variables fac1, fac2 and fac3 are
also dummies and record respondents’ access to various public services and facilities.
Variable fpmessage keeps whether respondents have received public education on family
planning, radio indicates whether the interviewed household owns any radios, and rural
indicates whether or not it is a rural household.

Based on the above information

a) Estimate the data using multinomial logit model and interpret your result
b) Compute the marginal effect and interpret your result
c) Test fitness of the model
3. The wage_data dataset contains 753 observations on labor force participation of women. The
variables in this dataset are:

:
estimated wage, from earnings
wage
years of schooling
educ
actual labor market experience in years
exper :
woman’s age in years
age
family income, excluding wife’s earnings
nwifeinc
:

From a sample of 753 women, 325 do not participate in the labor force. Consider the following
model for the outcome equation:
log (wagei )=β 0 + β 1 educ i + β 2 exper i+ β3 exper2i +ui (3 a)
along with the selection equation:
y ¿i =γ 0 +γ 1 nwifeinc i + γ 2 educ i+ γ 3 age i+ ui

{
¿
1if yi >0
y i= ¿
(3 b)
0 if y i ≤ 0

a) What would the consequences for the estimator be if you estimated only equation (3a),
ignoring the sample-selection problem?
b) Use the heckman command to estimate the complete sample selection model. Estimate
the model using the two-step procedure and report the results. (Hint Estimate both
manually and using stat syntax)
c) Estimate the complete sample model in one step. Do the results change substantially
compared to the two-step procedure?
d) Changed the missing values of wage to zero and run the model 3(a) by tobit; and
 Find the Expected value of y i.e logwage, and
 Find the probability that y>0 given x
e) Dropping the whole missing observations of lwage and run model 3(a) by truncated
model
f) Which model is the best given the data set? Model c), d) or e)
4. Use the data on working and married women in mroz.csv

hours = α 1 log (wage ) +β 10 + β11 educ+ β12 age+ β13 kidslt 6 +β 14 nwifeinc +ui
2
log ( wage) = α 2 hours +β 20 + β 21 educ +β 22 exp er+β 23 exp er +u i

Where the two eqautions are the labour supply equation and labour demand equation,

respectively; and where

:
hours worked, 1975
hours :
# kids < 6 years
kidslt6 :
# kids 6-18
kidsge6
woman’s age in years
age :
years of schooling
educ
:
wage : estimated wage from earns., hours
faminc : family income, 1975
exper : actual labor mkt exper
nwifeinc : (faminc - wage*hours)/1000
lwage : log(wage)
expersq : exper^2

i. Estimate the labor supply equation using 2SLS

a) What are the rank and order conditions;
b) Undertake the identification test; and
c) Undertake overidentification test.
ii. Estimate the labor supply equation using OLS and compare with 2SLS;
iii. Estimate the labour demand equation using 2SLS
a) What are the rank and order conditions;
b) Undertake the identification test; and
c) Undertake overidentification test
iv. Estimate the labour demand equation using OLS and compare with 2SLS result.