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Readings (a) What is the empirical strategy of Green et al. (2016)? Is it just a difference-in-difference or something else? What is the treatment group? What is the control group? What is the synthetic control approach? (b) Describe the three empirical strategies used in Asquith et al. (2023). (c) Discuss potential costs and benefits that should be considered in a cost-benefit analysis of a tax on sugary beverages. What is the question that Colchero et al. (2017) ask, and what do they find?

Math-Based Problems Write your answers to the following math-based problems on a sheet (or sheets) of paper. Make sure to show all your work and clearly label your answers. You will upload an image or PDF scan of your work. 

Part B The market inefficiency stems from the fact that:

Air Pollution Schlenker and Walker (2016) study the effect of air pollution on contemporaneous health. (a) Consider the correlation between the air pollution that someone is exposed to and their health. Name two reasons why this correlation may not be causal. (b) Describe the empirical strategy that Schlenker and Walker use to obtain causal estimates. If possible, use the language of IV. (c) Schlenker and Walker don’t simply rely on local congestion in California airports, but instead make use of congestion driven by delays in other states. Why is local congestion problematic for recovering causal effects, while congestion stemming from other states is not? In your answer, use the phrase “exclusion restriction”.

Externalities Question 1 Consider a group of friends who switch from driving to work to taking the bus. This makes the bus crowded, annoying the existing passengers. 

Miscellaneous Question 2 In stores in the United States, the sales tax is not included in the list price and is instead added on at the checkout counter. By contrast, in Europe the sales tax (known as the VAT) is included in the list price. Based on your knowledge of internalities, which of the following is most likely to be true. 

School Competition One strategy for improving K-12 education is for government to provide families with vouchers that they can use to pay for any school (public or private) of their choosing. The hope is that competition will cause schools to increase their effectiveness (or value added) in helping children learn. This is because families will migrate away from schools with low value added and towards schools with high value added. Unfortunately, empirical analysis of voucher systems has found mixed results. In some settings, vouchers have boosted learning (e.g., Colombia), while in others they have actually caused it to decline (e.g., Louisiana). Explain this disparate set of results. Under what conditions will competition cause schools to increase their value added? How is it possible that this happens in some settings but not others?

Externalities Question 2 Consider a group of friends who switch from driving to work to taking the bus. The additional crowding induces the bus company to add another bus at a slightly different time. Some existing passengers appreciate the flexibility of the increased service.

Part B What is the confidence interval for

Part A This is a: