64 Part 1 Regression Analysis with Cross-Sectional Data

C2 The data set in CEOSAL2.RAW contains information on chief executive officers for
U.S. corporations. The variable salary is annual compensation, in thousands of dollars,
and ceoten is prior number of years as company CEO.
(i) Find the average salary and the average tenure in the sample.
(ii) How many CEOs are in their first year as CEO (that is, ceoten 5 0)? What is the
longest tenure as a CEO?
(iii) Estimate the simple regression model

log(salary) 5 b0 1 b1ceoten 1 u,

and report your results in the usual form. What is the (approximate) ­predicted per-
centage increase in salary given one more year as a CEO?

C3 Use the data in SLEEP75.RAW from Biddle and Hamermesh (1990) to study whether
there is a tradeoff between the time spent sleeping per week and the time spent in paid
work. We could use either variable as the dependent variable. For concreteness, estimate
the model

sleep 5 b0 1 b1totwrk 1 u,

where sleep is minutes spent sleeping at night per week and totwrk is total minutes
worked during the week.
(i) Report your results in equation form along with the number of observations and
R2. What does the intercept in this equation mean?
(ii) If totwrk increases by 2 hours, by how much is sleep estimated to fall? Do you
find this to be a large effect?

C4 Use the data in WAGE2.RAW to estimate a simple regression explaining monthly ­salary
(wage) in terms of IQ score (IQ).
(i) Find the average salary and average IQ in the sample. What is the sample standard
deviation of IQ? (IQ scores are standardized so that the average in the population
is 100 with a standard deviation equal to 15.)
(ii) Estimate a simple regression model where a one-point increase in IQ changes
wage by a constant dollar amount. Use this model to find the ­predicted increase in
wage for an increase in IQ of 15 points. Does IQ explain most of the variation in
wage?
(iii) Now, estimate a model where each one-point increase in IQ has the same percent-
age effect on wage. If IQ increases by 15 points, what is the approximate percent-
age increase in predicted wage?

C5 For the population of firms in the chemical industry, let rd denote annual expenditures
on research and development, and let sales denote annual sales (both are in ­millions of
dollars).
(i) Write down a model (not an estimated equation) that implies a constant elasticity
between rd and sales. Which parameter is the elasticity?
(ii) Now, estimate the model using the data in RDCHEM.RAW. Write out the esti-
mated equation in the usual form. What is the estimated elasticity of rd with respect
to sales? Explain in words what this elasticity means.

Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has
deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.