Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 2

A simple model to determine the effectiveness of condom usage on reducing sexually transmitted diseases among sexually active high school students is
infrate = 0 + 1conuse + 2percmale + 3avginc + 4city + u1,
where
infrate = the percentage of sexually active students who have contracted venereal disease.
conuse = the percentage of boys who claim to regularly use condoms. avginc = average family income.
city = a dummy variable indicating whether a school is in a city.
The model is at the school level.
(i) Interpreting the preceding equation in a causal, ceteris paribus fashion, what should be the sign of 1
(ii) Why might infrate and conuse be jointly determined
(iii) If condom usage increases with the rate of venereal disease, so that 1 0 in the equation
conuse = 0 + 1infrate + other factors, what is the likely bias in estimating 1 by OLS
(iv) Let condis be a binary variable equal to unity if a school has a program to distribute condoms. Explain how this can be used to estimate 1 (and the other betas) by IV. What do we have to assume about condis in each equation