Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and Mc
ID: 3206226 • Letter: U
Question
Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995), the following equation relates housing price (price) to the distance from a recently built garbage incinerator (dist): log(price)^= 9.40 + 0.312 log(dist) n = 135, R^2 = 0.162. Interpret the coefficient on log(dist). Is the sign of this estimate what you expect it to be? Do you think simple regression provides an unbiased estimator of the ceteris paribus elasticity of price with respect to dist? (Think about the city's decision on where to put the incinerator.) What other factors about a house affect its price? Might these be correlated with distance from the incinerator?Explanation / Answer
Answer to part (i)
The coefficient of "log(dist) is positive and its value is 0.312 , which implies that as the distance increases, the price of the house will also rise. This is definitely what every one expects, farther the house from the garbage facilities better is the location considered from the perspective of hygiene.
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Answer to part (ii)
We cannot make use of simple regression here , as it may fail to provide the unbiased estimation of price. The relation between price and distance here not simply linear.
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Answer to part (iii)
Obviously there are multiple factors that influence the price of the house, the biggest contributor is the size of the house, the proximity to market and public places, number of floors in the house and so on. So mere distance from the incinerator is not the sole influencer. it is one of the factors that affects the pricing of houses. The proximity of markets and public places may be related to the distance from the incinerator. But factors like size of the house or number of floors, is not related to the distance from incinerator.
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