ECON 1629 Midterm: Midterm 2 Solutions

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31 Jan 2019
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1 happy students: develop an estimation strategy that uses the data your colleague has available to estimate the causal e ect of admission to brown on happiness at age 25. (15 points) We are interested in studying the following relationship: Hap p in essi = 0 + 1adm it t edi + i (1) To establish causality, it must be the case that e[ i|adm it t edi] = 0. This assumption, how- ever, may not hold as people admitted to brown might be happier for other unobserved reasons. A way to get around this is by using the internal score xi. The graph suggests that although people with higher xi"s are more likely to be admitted, xi is not the only determinant of admis- sion. Thus, in this setting we don"t have a sharp discontinuity, but a "fuzzy" one around xi = 3 (it may be that brown uses this cuto as part of its decision).

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