Question

4. The median starting salary for new law school graduates is determined by

log(salary) = B0 + B1 LSAT + B2 GPA + B3 log(libvol) + b4 log(cost)

+ B5 rank + u,

where LSAT is the median LSAT score for the graduating class, GPA is the median college

GPA for the class, libvol is the number of volumes in the law school library, cost is the an-

nual cost of attending law school, and rank is a law school ranking (with rank = 1 being

the best).

(i) Explain why we expect b5 < 0.

(ii) What signs do you expect for the other slope parameters? Justify your answers.

(iii) Using the data in LAWSCH85.RAW, the estimated equation is

^ log(salary ) = 8.34 + .0047 * LSAT + .248 GPA + .095 log(libvol)

+ .038 log(cost) - .0033 rank

n = 136, R^2 = .842.

What is the predicted ceteris paribus difference in salary for schools with a median

GPA different by one point? (Report your answer as a percentage.)

(iv) Interpret the coefficient on the variable log(libvol).

(v) Would you say it is better to attend a higher ranked law school? How much is a

difference in ranking of 20 worth in terms of predicted starting salary?