Use the data in KIELMC.RAW for this exercise.
(i) The variable dist is the distance from each home to the incinerator site, in feet. Consider the model
log(price) = (0 + (0y81 + (1 log(dist) + (0y81 ( log(dist) + u.
If building the incinerator reduces the value of homes closer to the site, what is the sign of (1 > 0? What does it mean if (1 > 0?
(ii) Estimate the model from part (i) and report the results in the usual form. Interpret the coefficient on y81- log(dist). What do you conclude?
(iii) Add age, age2, rooms, baths, log(intst), log(land), and log(area) to the equation. Now, what do you conclude about the effect of the incinerator on housing values?
(iv) How come the coefficient on log (dist) is positive and statistically significant in part (ii) but not in part (iii)? What does this say about the controls used in part (iii)?
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