Suppose you have two departments and have daily data on complaints and number of products they oversee for the departments over two years. In the second year, you increased the number of products under the scope of department #2 by 10. To estimate the effect of this increase in the number of products, you estimate the following regression: Complaints_it = α + β₁ × Department #2_it + β₂ × Year2_it + β₃ × Department #2_it × Year2_it + U_it. Which coefficient controls for non-time varying effects that make department #1 have more complaints than department #2? A) β₁ B) β₂ C) α + β₃ D) β₃

Question

Quizplus · Accepted Answer

The coefficient β₁ represents the difference in complaints between departments #1 and #2, controlling for all other variables in the regression. It is the coefficient that specifically relates to the department variable, which is what we are interested in for this question. The other coefficients relate to the Year 2 variable, the interaction between Year 2 and department, and the error term.

Suppose You Have Two Departments and Have Daily Data on Complaints