Question: Your first candidate for a regression to identify the effect of on is: Yi = 0 1 X 1i 2 X 2i Ui , where

Your first candidate for a regression to identify the effect of on is: Yi = 0 1 X 1i 2 X 2i Ui , where X 2 is a control variable. Suppose a member of your consulting team suggests to you that another variable Ri should be a control that is also included in your regression, in order for you not to be worried about the endogeneity problem. What condition could you credibly test using data on Y, X 1, X 2, and R which could justify the inclusion of Ri as a control in your regression? a. Ri has no effect per se on Yi. b. Ri has a strong correlation with X2. c. Ri is exogenous. d. spcorr(Ri, Yi (Xi1, Xi2)) 0

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