The following model can be used to study whether campaign expenditures affect election outcomes:
voteA = (0 + (1 log(expendA) + (2 log(expendB) + (3 prtystrA + u,
where voteA is the percentage of the vote received by Candidate A, expendA and expendB are campaign expenditures by Candidates A and B, and prtystrA is a measure of party strength for Candidate A (the percentage of the most recent presidential vote that went to A's party).
(i) What is the interpretation of (1?
(ii) In terms of the parameters, state the null hypothesis that a 1% increase in A's expenditures is offset by a 1% increase in B's expenditures.
(iii) Estimate the given model using the data in VOTE 1.RAW and report the results in usual form. Do A's expenditures affect the outcome? What about B's expenditures? Can you use these results to test the hypothesis in part (ii)?
(iv) Estimate a model that directly gives the t statistic for testing the hypothesis in part (ii). What do you conclude? (Use a two sided alternative).