第十讲虚拟变量DUMMYVARIALBE.pptxVIP

第十讲 虚拟变量DUMMY VARIALBEDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESDUMMY CLASSIFICATION WITH MORE THAN TWO CATEGORIESTWO SETS OF DUMMY VARIABLESSLOPE DUMMY VARIABLESSIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESThis sequence explains how you can include qualitative explanatory variables in your regression model.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESSuppose that you have data on the annual recurrent expenditure, COST, and the number of students enrolled, N, for a sample of secondary schools, of which there are two types: regular and occupational.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESThe occupational schools aim to provide skills for specific occupations and they tend to be relatively expensive to run because they need to maintain specialized workshops.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESOne way of dealing with the difference in the costs would be to run separate regressions for the two types of school.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESHowever this would have the drawback that you would be running regressions with two small samples instead of one large one, with an adverse effect on the precision of the estimates of the coefficients.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESb1b1OCC = 0 Regular school COST = b1 + b2N + uOCC = 1 Occupational school COST = b1 + b2N + uAnother way of handling the difference would be to hypothesize that the cost function for occupational schools has an intercept b1 that is greater than that for regular schools.SIB-BFSU, ECONOMETRICSDUMMY VARIABLE CLASSIFICATION WITH TWO CATEGORIESb1b1OCC = 0 Regular school COST = b1 + b2N + uOCC = 1 Occupational school COST = b1 + b2N + uEffectively, we are hypothesizing that the annual overhead cost is different for the two types of school, but the marginal cost is the same. The marginal cost assumption is n