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1. (8 points) Difference In Differences. Suppose we want to estimate the effect of streetlight intensity on crime (e.g: does installing streetlights in a particular area change the amount of crime in the area). We have two neighborhoods, A and B. We build streetlights in neighborhood A. (A) Two ideas for estimating this effect. One: Compare average crime in neighborhood A to average crime in neighborhood B after the streetlights were installed. Two: compare average crime in A after the streetlights were installed to average crime in neighborhood B to before the streetlights were installed. Why are these comparisons problematic? You need to provide one reason for each comparison. (2 points)(B) Now suppose we decide to estimate the treatment effect using Difference in Differences. All remaining parts of this question refer to the following graph: 23 B 22.5 B 22 Crime 21 15 20 time For part B, draw the assumed difference if there was no treatment (e.g. if we did not install the lights, what are we assuming the graph looks like?) (2 points) (C) Calculate the pre-treatment difference between treatment and control units between the treatment and control units. Calculate the post treatment difference between treatment and control units. (2 points)(D) Finally, using part C, calculate the difference in differences estimate of the policy. Il- lustrate the treatment effect on the graph on the previous page. (2 points)