Do houses with bigger lot sizes sell for higher prices? To answer this question empirically, we will
Question:
Do houses with bigger lot sizes sell for higher prices? To answer this question empirically, we will construct a simple hedonic price model for an unspecified Canadian city using real data on 832 residential houses that were sold in this city during a particular calendar year. These data are reported in the Excel data file hedonic.xls. For this hedonic data set, lot size ( LOT ) is measured in acres and residential housing price ( PRICE ) is measured in thousands of Canadian dollars; QUARTER denotes the quarter in which each house was sold ( QUARTER =1 denotes the first quarter (Winter); QUARTER = 2 denotes the second quarter (Spring); QUARTER = 3 denotes the third quarter (Summer); and QUARTER = 4 denotes the fourth quarter (Fall)). The variable ID is the housing identification variable.
Is it possible that the model you estimated in Part 1 suffers from omitted variable bias? Explain.
PRICE i = β 0 + β 1 LOT i + u i
PRICE i = 119.575 + 1.38850LOT i
= (1.54566) (0.209083)
Expert Answer:
Omitted variable bias exists when a relevant dependent variable is removed from the regression estim... View the full answer
