Basic Econometric Concepts: Time Series

Today I will review a few basic concepts of time series econometrics. A time series is a stochastic process where observations appear in different time periods. For instance, {zi} (i=1,2,3,…) is a stochastic process with zi representing the GDP each quarter. Below are a few important definitions which are important to econometric estimation using time…

Type I vs. Type II errors

One of the basic concepts in statistics is the use mathematically rigorous tests to determine whether or not a researcher can reject their null hypothesis. The null hypothesis is the state of the world the researcher assumes exists. The alternative hypothesis is—as the name suggests—an alternative to the null hypothesis. Through these statistical tests, researchers…

Hausman Endogeneity Test

Ordinary Least Squares  If you have studied basic statistics, its likely that you have come across the ordinary least squares (OLS) estimation technique.  OLS attempts to minimize the squared distance between dependent variables (‘y‘) and the a linear prediction of y (y_hat=xβ).  The parameter vector ‘β_ols‘ minimizes this distance.  The most important assumption in order for β to reflect to true…

Ordered Probit (or Logit) Estimation

What is one to do when the dependent variable under investigation is categorical?  Well if these categories are ordered, then an ordered probit (or logit) estimation technique is a sensible means for estimation.  An example where ordered probit estimation should be used is for an integer index ranking of physician quality between one and five.    On…

Disproportionate Stratified Sampling

Many data sets that social scientists come across use disproportionate stratified sampling. If a subpopulation is small, the survey designers may want to oversample this group. For example, in the Survey of Income and Program Participation (SIPP) poor individuals are oversampled and in the Community Tracking Study (CTS) uninsured individuals are oversampled in order to…

Poisson Distribution Estimation

The Poisson distribution is one that is often used in health economics.  Wikipedia has a nice basic summary of the Poisson distribution; Wolfram MathWorld gives a more sophisticated analysis.  The distribution is where ‘λ‘ is equal to the number of expected occurrences in a period.  The distribution expresses the probability of a number of events…

Adverse Selection and the purchase of in Medigap Insurance

Jason has insurance and his brother Nosaj does not.  Jason utilizes more medical services than Nosaj.  Is this situation occuring because Jason is truly sicker than Nosaj (adverse selection), or is this because since Jason has insurance, medical services are cheaper for him than Nosaj (moral hazard)?  Disentangling the problems of moral hazard and adverse selection…

Contingent Valuation Method

How much would you be willing to pay for a cancer treatment with a 2% chance of working?  How much would you be willing to spend for a new vaccine that was as effective as a prior vaccine, but was now available in chewable tablets?  One way to answer questions regarding new products or goods…

Social Security Around the World XI: Measuring Benefits

Throughout the past week, I have spoke of the work disincentives many social security programs create.  The question is: how do we measure these disincentives.  The economics literature has given three different metrics to measure implicit social security wealth a retiree has and I will discuss each in turn. Accrual The accrual method measures how much…

SCHIP expansion in Minnesota and New York

Under the Balanced Budget Act of 1997, the Federal government established the State Children’s Health Insurance Program (SCHIP), which was aimed at reducing the number of uninsured children in the United States. States were given a variety of options of how to implement this program. Nineteen states decided to operate the SCHIP program as an…