* Intro to Econometrics * PS 3 * Name: Joseph Kim * Date: Oct 17 2013 b) a.

Because we ran a simple regression with the logs on the independent and dependent variables (constant elasticity model) the elasticity of the CEO salary to the firm sales is given by the coefficient of lsales which is, 0.1621283 b. i. No it does not ii. Yes, for when lsales is -1 and 0.75 and when lmktval is about -0.66 and 1.33 just to name a few. c) a. The coefficient for ceoten expresses the percentage change in CEO salary when tenure is increased by one year since it is a level log regression when holding sales and market value constant. This gives us a 1.17% change. i. If there is no change in the size or performance of the company that tends to mean that the CEO is performing his job accordingly and as a result the Board of Directors increase salary to give incentive for the CEO to keep up the good work or do better. b. i. Since we added ceoten as a quadratic, we have and now we have to find the derivative in order to calculate the marginal effect of an additional year of tenure: we are given the coefficients by the regression and so: 0.045 -.0024ceotensq iii. Yes, after about 5 years. d) a. Attending college seems to have a 3.37% increase in salary while attending grad school seems to have a 6.02% decrease in salary holding other factors constant. This could be due to the fact that attending grad school can cause a decrease in ceoten thus decreasing potential salary if tenure is longer.