Wooldridge, Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995), the following equation relates housing price (price) to the distance from a recently built garbage incinerator (dist):
fitted log(price) = 9.40 + 0.312 log(dist)
n = 135, R-squared = 0.162
(i) Interpret the coefficient on log(dist). Is the sign of this estimate what you expect it to be?
(ii) Do you think simple regression provides an unbiased estimator of the ceteris paribus elasticity of price with respect to dist? (Think about the city's decision on
where to put the incinerator.)
(iii) What other factors about a house affect its price? Might these be correlated with distance from the incinerator?