Question: Suppose that the regression model is y i = + x i + i , where the disturbances i have f ( i

Suppose that the regression model is y_i = α + βx_i + ε_i, where the disturbances εi have f (ε_i) = (1/λ) exp(−ε_i /λ), ε_i ≥ 0. This model is rather peculiar in that all the disturbances are assumed to be nonnegative. The disturbances have E[ε_i | x_i] = λ and Var[ε_i | x_i] = λ². Show that the least squares slope is unbiased but that the intercept is biased.

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