ECON 550: Econometrics

Exercise 5 – Panel Estimation

To get started for this exercise, you will need to download the AyresDonohue_Guns.dta dataset
to your local hard-drive from Bb Learn > Course Documents > Assignments > Exercise 5 –
Panel Estimation. (Right click in Bb Learn and select “Save link as…” to download rather than
opening the data in the viewer window.)

This dataset is drawn from a paper by Ayres and Donohue (Stanford Law Review, 2003), entitled
“Shooting Down the `More Guns, Less Crime’ Hypothesis.” This dataset contains observations
on crime rates and concealed-carry gun laws across 50 states plus the District of Columbia over
the period 1977-1999. These laws are referred to as “shall-issue” laws because they require
states to issue concealed weapons permits to all eligible applicants (typically any mentally-
competent citizen with no prior felony convictions).

1) Using heteroskedasticity-robust standard errors, estimate a regression of the natural log of

violent crime rates, 𝑙𝑣𝑖𝑜, on an indicator for whether a state has a shall-issue law in place,
v_shall. Estimate the following three specifications:
a. A simple univariate model
b. A multivariate model with controls for incarc_rate, densitym, rpcpi, stpop, pb1064,
pw1064, pm1029
c. Drop pb1064, pw1064, pm1029 from (b) and control for the full set of real per capita
income variables (rp*) and demographic age variables (pb* pw* pn*)

i. How does the addition of control variables in specifications (b) and (c) change the
estimated effect of shall-carry laws in terms of statistical significance and in terms of
“real-world” economic significance? Is the effect estimated in (c) large or small in a
“real-world” sense?

ii. What can you infer about the nature of the bias associated with the coefficient on v_shall
when estimating regression (a) without controls versus regression (c)? Provide at least
one specific explanation for how the omission of one of the controls in (c) would lead to
the direction of bias that you observe.

iii. Describe a variable that might vary across states but likely varies little (if at all) over time
and might contribute to omitted variable bias in the results from (c).

2) Using heteroskedasticity-robust standard errors, re-estimate regression (1c), controlling for

time-invariant state fixed effects using either the dummy variable or entity demeaning
approach (coding the demeaning yourself). (Note that state identifiers are coded numerically
as fipsstat.)

i. How are the core results from (1) affected by the inclusion of state fixed effects, and how
does this correspond to your response from (1.iii)?
 ii. Describe a variable that might vary over time but likely varies little (if at all) across states
and might still contribute to omitted variable bias.

3) Incorporate additional year fixed effects into your state fixed effects model from (2). How
do the results change, if at all, and which set of results do you find most credible so far?

4) Re-estimate your state- and year- fixed effects model with cluster-robust standard errors,
clustered at the state level. What is the purpose of computing clustered standard errors in this
manner, and how does this affect your interpretation of the effect of concealed weapons
laws? (Aside: Note that Stata’s xtreg, fe command automatically computes cluster-
robust standard errors if you specify only vce(robust) as an option.)

5) Repeat the analysis from (4) using alternately 𝑙𝑚𝑢𝑟, 𝑙𝑟𝑜𝑏, 𝑙𝑝𝑟𝑜 and 𝑙𝑙𝑎𝑟 as the dependent
variable (i.e., the natural log of murder, robbery, property crime, and larceny rates,
respectively). To what extent are these different types of violent crimes affected by shall-
issue laws, and to what extent are the differences in effects across these different crime
outcomes informative with respect to the efficacy of shall-issue laws in deterring crime?

6) In your view, what are the most important remaining threats to the internal validity of this
regression analysis?

7) Based on your analysis, what conclusions would you draw about the effect of concealed
weapons laws on crime?

Graded Submission
To receive credit for this class exercise, please submit your executable Stata .do script for
questions (1) – (5) along with your written response (in a separate Word document or text
file) to the underlined portions of (1), (3), (4), and (6) above via the assignment drop in Bb
Learn > Course Documents > Assignments > Exercise 5 – Panel Estimation.

Due Sunday 11:59 p.m. EST