C, = a, + a,Y, + a,C,, + H 1, = B, + B,K, + B,P, + M2 Y, = C, + 1, +G, Where the error terms follow ideal conditions but cov(4,, 4,2 | X) # 0 (I am using X to denote all exogenous and predetermined regressors in the model). a. Derive the reduced for equation for Y,. b. Suppose that we estimate the consumption function by OLS. What ideal conditions are we violating and what are the consequences? Would your answer change if cov(4,, 4,2 | X)= 0 ? Explain.

C, = a, + a,Y, + a,C,, + H 1, = B, + B,K, + B,P, + M2 Y, = C, + 1, +G, Where the error terms follow ideal conditions but cov(4,, 4,2 | X) # 0 (I am using X to denote all exogenous and predetermined regressors in the model). a. Derive the reduced for equation for Y,. b. Suppose that we estimate the consumption function by OLS. What ideal conditions are we violating and what are the consequences? Would your answer change if cov(4,, 4,2 | X)= 0 ? Explain.

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter4: Economic Evaluation In Health Care

Section: Chapter Questions

Problem 10QAP

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