ch07 Edit v2

Chapter 7
Using Indicator Variables
Econometrics
Handong Global University
Seon Tae Kim

Chapter Outline
 7.1 Indicator Variables
 7.2 Applying Indicator Variables
 7.3 Log-Linear Models
 7.4 The Linear Probability Model
 7.5 Treatment Effects
 7.6 Treatment Effects and Causal Modeling
2
7.1 Indicator Variables (1 of 3)
 Indicator variables allow us to allow differences in (slope, intercept) across different ‘groups’ of
observations.
 Consider a hedonic model to predict the value of a house as a function of its characteristics:
 Size, location, number of bedrooms, age
 Consider the square footage at first: (7.1) 𝑃𝑅𝐼𝐶𝐸 = β1 + β2 𝑆𝑄𝐹𝑇 + 𝑒
 β2 is the value of an additional square foot of living area and β1 is the value of the land alone.
 How do we account for location, which is a qualitative variable?
3
 Indicator variables are used to account for qualitative factors.
 They are often called dummy, binary or dichotomous variables, because they take just two
values, usually one or zero, to indicate the presence or absence of a characteristic or to
indicate whether a condition is true or false.
 They are also called dummy variables, to indicate that we are creating a numeric variable for
a qualitative, non-numeric characteristic.
 We use the terms indicator variable and dummy variable interchangeably.
 For a qualitative variable with M distinctive values, construct (M-1) dummy variaables.
4
 Generally, we define an indicator variable D as:
1 if characteristic is present
 (7.2) D
0 if characteristic is not present
 So, to account for location, a qualitative variable, we would have:
1 if property is in the desirable neighborhood

D
0 if property is not in the desirable neighborhood
5
7.1.1 Intercept Indicator Variables (1 of 4)
 Adding our indicator variable to our model:
(7.3) PRICE  β1   D  β 2 SQFT  e
 If our model is correctly specified, then:
𝛽 + 𝛿 + 𝛽 𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝐷 = 1
(7.4) E(𝑃𝑅𝐼𝐶𝐸|𝑆𝑄𝐹𝑇) 𝛽1 + 𝛽 𝑆𝑄𝐹𝑇
2
1 2 𝑤ℎ𝑒𝑛 𝐷 = 0
6
PRICE  β1   D  β 2 SQFT  e
7
 Adding the indicator variable D to the regression model causes a parallel shift in the
relationship by the amount δ.
 An indicator variable like D that is incorporated into a regression model to capture a shift in the
intercept as the result of some qualitative factor is called an intercept indicator variable, or an
intercept dummy variable.
 The least squares estimator’s properties are not affected by the fact that one of the explanatory
variables consists only of zeros and ones,
8
 D is treated as any other explanatory variable.
 We can construct an interval estimate for D, or we can test the significance of its least
squares estimate.
 The value D = 0 defines the reference group, or base group.
 We could pick any base.
 For example:
1 if property is not in the desirable neighborhood
LD  
0 if property is in the desirable neighborhood
9
 Then our model would be: 𝑃𝑅𝐼𝐶𝐸 = β1 + 𝜆𝐿𝐷 + β2 𝑆𝑄𝐹𝑇 + 𝑒
 Suppose we included both D and LD: 𝑃𝑅𝐼𝐶𝐸 = β1 + 𝛿𝐷 + 𝜆𝐿𝐷 + β2 𝑆𝑄𝐹𝑇 + 𝑒
 The variables D and LD are such that D + LD = 1.
 Because the intercept variable x1 = 1, we have created a model with exact collinearity.
 We have fallen into the dummy variable trap.
 Include only one, but not both, of the two indicator variables.
10
7.1.2 Slope-Indicator Variables (1 of 3)
 Suppose we specify our model as:
(7.5) 𝑃𝑅𝐼𝐶𝐸 = β1 + β2 𝑆𝑄𝐹𝑇 + 𝜸 𝑺𝑸𝑭𝑻 × 𝑫 + 𝑒
 The new variable (SQFT x D) is the product of house size and the indicator variable.
 It is called an interaction variable, as it captures the interaction effect of location and size on
house price.
 Alternatively, it is called a slope-indicator variable or a slope dummy variable, because it

allows for a change in the slope of the relationship.
11
 Now we can write:
𝐸 𝑃𝑅𝐼𝐶𝐸 𝑆𝑄𝐹𝑇, 𝐷 = 𝛽1 + 𝛽2 𝑆𝑄𝐹𝑇 + 𝛾 𝑆𝑄𝐹𝑇 𝑥 𝐷
𝛽1 + (𝛽2 +𝛾)𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝐷 = 1

=
𝛽1 + 𝛽2 𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝐷 = 0
 The slope can be expressed as:
𝛿𝐸(𝑃𝑅𝐼𝐶𝐸|𝑆𝑄𝐹𝑇) 𝜷𝟐 + 𝜸 𝑤ℎ𝑒𝑛 𝑫 = 𝟏
=
𝛿𝑆𝑄𝐹𝑇 𝜷𝟐 𝑤ℎ𝑒𝑛 𝑫 = 𝟎
12
13
 Assume that house location affects both the intercept and the slope, then both
effects can be incorporated into a single model:
 (7.6) 𝑃𝑅𝐼𝐶𝐸 = β1 + δ𝑫 + β2 𝑆𝑄𝐹𝑇 + γ 𝑺𝑸𝑭𝑻 × 𝑫 + 𝑒
 The variable (SQFT x D) is the product of house size and the indicator variable, and is
called an interaction variable.
(𝛽1 +𝜹) + (𝛽2 +𝜸)𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝑫 = 𝟏

𝐸 𝑃𝑅𝐼𝐶𝐸 𝑆𝑄𝐹𝑇 =
𝛽1 + 𝛽2 𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝐷 = 0
14
15
7.2 Applying Indicator Variables
We can apply indicator variables to a number of problems.
16
7.2.1 Interactions Between Qualitative Factors
 Consider the wage equation:
WAGE  β1  β 2 EDUC  δ1 BLACK  δ 2 FEMALE
(7.8)
 γ  BLACK FEMALE   e
 The expected value is:
𝛽1 + 𝛽2 𝐸𝐷𝑈𝐶 𝑊𝐻𝐼𝑇𝐸 − 𝑀𝐴𝐿𝐸
(𝛽1 +𝛿1 ) + 𝛽2 𝐸𝐷𝑈𝐶 𝐵𝐿𝐴𝐶𝐾 − 𝑀𝐴𝐿𝐸
E WAGE EDUC =
(𝛽1 +𝛿2 ) + 𝛽2 𝐸𝐷𝑈𝐶 𝑊𝐻𝐼𝑇𝐸 − 𝐹𝐸𝑀𝐴𝐿𝐸
(𝛽1 +𝛿1 + 𝛿2 + 𝛾)𝐸𝐷𝑈𝐶 𝐵𝐿𝐴𝐶𝐾 − 𝐹𝐸𝑀𝐴𝐿𝐸
 Interpretation of BLACK x FEMALE : gender difference is more pronounced for

BLACK than WITE.
17
7.2.2 Qualitative Factors with Several Categories (1 of 2)
 Consider including regions in the wage equation:
(7.9) WAGE  β1  β 2 EDUC  δ1SOUTH  δ 2 MIDWEST  δ3WEST  e
 The sum of the regional indicator variables is NORTHEAST + SOUTH + MIDWEST + WEST = 1.
 Thus, the “intercept variable” 𝑥1 = 1 is an exact linear combination of the region indicators.
18
7.2.2 Qualitative Factors with Several Categories (2 of 2)
 Failure to omit one indicator variable: the dummy variable trap.
 Omitting one indicator variable defines a reference group so our equation is:
𝛽1 + 𝛿3 + 𝛽2 𝐸𝐷𝑈𝐶 𝑖𝑓 𝑊𝐸𝑆𝑇
(𝛽1 +𝛿2 ) + 𝛽2 𝐸𝐷𝑈𝐶 𝑖𝑓 𝑀𝐼𝐷𝑊𝐸𝑆𝑇
E WAGE EDUC =
(𝛽1 +𝛿1 ) + 𝛽2 𝐸𝐷𝑈𝐶 𝑖𝑓 𝑆𝑂𝑈𝑇𝐻
𝛽1 + 𝛽2 𝐸𝐷𝑈𝐶 𝑖𝑓 𝑁𝑂𝑅𝑇𝐻𝐸𝐴𝑆𝑇
 The omitted indicator variable, NORTHEAST, identifies the reference.
19
7.2.3 Testing the Equivalence of Two Regressions (1 of 6
)
 We can consider a model with intercept and/or slope indicator variable(s).
 We might ask whether there is really difference either in intercept or in slope

between the observations differing in the indicator.
 We can use F-test to test the null hypothesis that the coefficients on such
indicator variables are zero.
20
)
 Now consider our wage equation:
𝑊𝐴𝐺𝐸 = β1 + β2 𝐸𝐷𝑈𝐶 + δ1 𝐵𝐿𝐴𝐶𝐾 + δ2 𝐹𝐸𝑀𝐴𝐿𝐸
+γ 𝐵𝐿𝐴𝐶𝐾 × 𝐹𝐸𝑀𝐴𝐿𝐸 + 𝑒
 “Are there differences between the wage regressions for the south and for the rest of
the country?’’
21
)
 Our wage equation:
𝑊𝐴𝐺𝐸 = β1 + β2 𝐸𝐷𝑈𝐶 + δ1 𝐵𝐿𝐴𝐶𝐾 + δ2 𝐹𝐸𝑀𝐴𝐿𝐸
+γ 𝐵𝐿𝐴𝐶𝐾 × 𝐹𝐸𝑀𝐴𝐿𝐸 + 𝑒
 If there are no differences, then the data from the south and other regions can be
pooled into one sample, with no allowance made for differing slope or intercept.
22
)
 To test this, we specify our unrestricted model:
WAGE  β1  β 2 EDUC  δ1 BLACK  δ 2 FEMALE

 γ  BLACK FEMALE   θ1SOUTH
(7.10) θ 2  EDUC  SOUTH   θ 3  BLACK  SOUTH 

θ 4  FEMALE  SOUTH 
θ 5  BLACK  FEMALE  SOUTH   e
23
7.2.3 Testing the Equivalence of Two Regressions (5 of 6)
 Now examine this version of (7.10):
E WAGE 𝐗
𝛽1 + 𝛽2 𝐸𝐷𝑈𝐶 + 𝛿1 𝐵𝐿𝐴𝐶𝐾 + 𝛿2 𝐹𝐸𝑀𝐴𝐿𝐸 + 𝛾 𝐵𝐿𝐴𝐶𝐾 𝑋 𝐹𝐸𝑀𝐴𝐿𝐸

𝑆𝑂𝑈𝑇𝐻 = 0
=
(𝛽1 + 𝜃1 ) + (𝛽2 +𝜃2 )𝐸𝐷𝑈𝐶 + (𝛿1 + 𝜃3 )𝐵𝐿𝐴𝐶𝐾 + (𝛿2 +𝜃4 )𝐹𝐸𝑀𝐴𝐿𝐸
+(𝛾 + 𝜃5 ) 𝐵𝐿𝐴𝐶𝐾 𝑋 𝐹𝐸𝑀𝐴𝐿𝐸 𝑆𝑂𝑈𝑇𝐻 = 1
 Note that each variable has a separate coefficient for southern and nonsouthern workers.
24
7.2.3 Testing the Equivalence of Two Regressions (6 of 6)
 The usual F-test of a joint hypothesis relies on the assumptions MR1–MR6 of the linear
regression model.
 Of particular relevance for testing the equivalence of two regressions is assumption

MR3, that the variance of the error term, var(ei) = σ2, is the same for all observations.
 If we are considering possibly different slopes and intercepts for parts of the data, it
might also be true that the error variances are different in the two parts of the data.
 In such a case, the usual F-test is not valid.
25
7.2.4 Controlling for Time
 Indicator variables are also used in regressions using time-series data.
 We may want to include an effect for different seasons of the year.
 In the same spirit as seasonal indicator variables, annual indicator variables are used to
capture year effects not otherwise measured in a model.
 An economic regime is a set of structural economic conditions that exist for a certain
period. (e.g., Investment tax credit during certain periods)
26
7.3 Log-Linear Models (1 of 2)
 Consider the wage equation in log-linear form:
(7.11) ln WAGE   β1  β 2 EDUC  δFEMALE
 What is the interpretation of δ?
 FEMALE is an intercept dummy variable, creating a parallel shift of the log-
linear relationship when FEMALE = 1.
27
7.3 Log-Linear Models (2 of 2)
 Expanding our model, we have:
β1  β 2 EDUC
 MALES ( FEMALES  0)
ln WAGE   
 β1  δ   β 2 EDUC FEMALES ( MALES  1)

 But what about the fact that the dependent variable is ln(WAGE)? Does that
have an effect?
 Yes and there are two solutions.
28
7.3.1 A Rough Calculation
 Let’s first write the difference between females and males:
ln WAGE  FEMALES  ln WAGE  MALES  δ

 This is approximately the percentage difference.
 The estimated model is:
Interpretation: there is a 24.32% differential between male and female wages.
 Is it correct?
29
7.3.2 An Exact Calculation (1 of 2)
 For a better calculation, the wage difference is:
 WAGEFEMALES 
ln WAGE  FEMALES  ln WAGE  MALES  ln   
 WAGEMALES 
 Using the property of logarithms that ln(x) − ln(y) = ln(x∕y). These are natural
logarithms, and the antilog is the exponential function.
WAGEFEMALES
 e
WAGEMALES
30
7.3.2 An Exact Calculation (2 of 2)
 Subtracting 1 from both sides:
WAGEFEMALES WAGEMALES WAGEFEMALES  WAGEMALES

   e  1
WAGEMALES WAGEMALES WAGEMALES
 The percentage difference between wages of females and males is 100(eδ - 1)%.
 We estimate the wage differential between males and females to be:
100(eδ – 1)% = 100(e-0.2432 – 1)% = -21.59%
31
7.5 Treatment Effects (1 of 3)
 Avoid the faulty line of reasoning known as post hoc, ergo propter hoc.
 One event’s preceding another does not necessarily make the first the cause of the
second.
 Another way to say this is embodied in the warning that ‘‘correlation is not the same
as causation.’’
 Another way to describe the problem we face in this example is to say that data
exhibit a selection bias, because some people chose (or self-selected) to go to the
hospital and the others did not.
32
 Selection bias is also an issue when asking:
 ‘‘How much does an additional year of education increase the wages of married
women?’’
 ‘‘How much does participation in a job-training program increase wages?’’
 Selection bias interferes with a straightforward examination of the data, and makes
more difficult our efforts to measure a causal effect, or treatment effect.
 Selection is affected by omitted unobserved factors that affect the dependent

variable.
33
 We would like to randomly assign items to a treatment group, with others being
treated as a control group.
 We could then compare the two groups.
 The key is a randomized controlled experiment.
 The ability to perform randomized controlled experiments in economics is limited
because the subjects are people, and their economic well-being is at stake.
34
7.5.1 The Difference Estimator (1 of 2)
 Define the indicator variable d as:
(7.12) 1 individual in treatment group

di  
0 individual in control group
 The model is then
(7.13) yi  β1  β 2 d i  ei , i  1, ,N
 And the regression functions are:
β1  β 2 if in treatment group, d i  1

E  yi   
β1 if in control group, d i = 0
35
7.5.1 The Difference Estimator (2 of 2)
 The least squares estimator for β2, the treatment effect, is:
d  d   yi  y 
N
i
(7.14) b2  i 1
 y1  y0
d d 
N 2
i
i 1
 where: y1   i 1 yi N1 , y0   i 1 yi N 0
N1 N0
 The estimator b2 is called the difference estimator, because it is the difference between the
sample means of the treatment and control groups.
36
7.5.2 Analysis of the Difference Estimator (1 of 2)
 The difference estimator can be rewritten as:
d  d   ei  e 
N
i
b2  β 2  i 1
 β 2   e1  e0 
d d 
N 2
i
i 1
 To be unbiased, we must have: E  e1  e0   E  e1   E  e0   0
 If individuals ‘‘self-select’’ into treatment and control groups: 𝑬 𝒆𝟏 − 𝑬 𝒆𝟎 is non-zero and the
selection bias in the estimation of the treatment effect
37
7.5.2 Analysis of the Difference Estimator (2 of 2)
 Is the selection bias in the estimation of the treatment effect?
 We can eliminate the self-selection bias if we can randomly assign
individuals to treatment and control groups, so that there are no systematic
differences between the groups, except for the treatment itself.
38
7.5.3 The Differences-in-Differences Estimator (1
of 5)
 Randomized controlled experiments are rare in economics because they are expensive
and involve human subjects.
 Natural experiments, also called quasi-experiments, rely on observing real-world
conditions that approximate what would happen in a randomized controlled
experiment.
 Treatment appears as if it were randomly assigned.
39
of 5)
 Estimation of the treatment effect is based on data averages for the two groups in
the two periods:
ˆ
δ= C
ˆ E
ˆ  B ˆ
ˆ A   
  yTreatment , After  yControl , After    yTreatment , Before  yControl , Before 
 The estimator called a differences-in-differences (abbreviated as D-in-D, DD, or

is δ̂
DID) estimator of the treatment effect.

40
of 5)
 The sample means are:
yControl , Before  Â  mean for control group before policy

yTreatment , Before  B̂  mean for treatment group before policy
yControl , After  Ê  mean for control group after policy
yTreatment , After  Ĉ  mean for treatment group after policy
41
of 5)
 Consider the regression model:
(7.19) yit  β1  β 2TREATi  β 3 AFTERt  δ TREATi  AFTERt   eit
 The regression function is:

β1 TREAT  0, AFTER  0 [Control before = A]
β  β TREAT  1, AFTER  0 [Treatment before = B]
 1
E  yit   
2
β1  β 3 TREAT  0, AFTER  1 [Control after = E]


β1  β 2  β 3  δ TREAT  1, AFTER  1 [Treatment after = C]
42
of 5)
 If 𝐴 = 𝛽1 , 𝐵 = 𝛽1 + 𝛽2 , 𝐸 = 𝛽1 + 𝛽3 𝑎𝑛𝑑 𝐶 = 𝛽1 + 𝛽2 + 𝛽3 + 𝛿
δ   C  E    B  A    β1  β 2  β 3  δ    β1  β 3     β1  β 2   β1 
 Using the least squares estimates, we have:
δ
 1
ˆ   b b b δ
2 3 1 3 
ˆ   b  b     b  b   b 
  1 2 1
  yTreatment , After  yConrol , After    yTreatment , Before  yConrol , Before 
43
7.6.6 Regression Discontinuity Designs
 Regression discontinuity (RD) designs arise when the separation into treatment and control
groups follows a deterministic rule: such as
 “Students receiving 75% or higher on the midterm exam will receive an award.”
 How the award affects future academic outcomes (: final exam score) might be the question
of interest. Those just below the cut-off point are a good comparison to those just above it.
 xi is the single variable determining whether an individual is assigned to the treatment group
or control group (forcing variable).
44
45
Treatment effect: τ̂c=B−A=326.7−243.6=83.1
Assumption: all other things being equal between the two students, A and B.
46
7.6.6 Regression Discontinuity Designs
 What if the assumption (: all other things being equal between the two students, A and B) is
not true?
 Include the dummy and estimate the regression equation:
 RDD bias: if y is related to x in a nonlinear way, then there could be a bias.
 In such a case, include polynomials of xi to address the aforementioned bias.
47
48
Key Words
 annual indicator variables  exact collinearity  quasi-experiments
 average treatment effect  hedonic model  reference group
 Chow test  indicator variable  regional indicator variables
 dichotomous variables  interaction variable  regression discontinuity
design
 difference estimator  intercept indicator variable
 seasonal indicator variables
 differences-in-differences  linear probability model
estimator  slope-indicator variable
 log-linear model
 dummy variables  treatment effect
 natural experiment
 dummy variable trap
49

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Chapter 7

Using Indicator Variables

Seon Tae Kim

 7.2 Applying Indicator Variables

 7.3 Log-Linear Models

 7.4 The Linear Probability Model

 7.5 Treatment Effects

 7.6 Treatment Effects and Causal Modeling

 Size, location, number of bedrooms, age

 Consider the square footage at first: (7.1) 𝑃𝑅𝐼𝐶𝐸 = β1 + β2 𝑆𝑄𝐹𝑇 + 𝑒

 How do we account for location, which is a qualitative variable?

 We use the terms indicator variable and dummy variable interchangeably.

 So, to account for location, a qualitative variable, we would have:

1 if property is in the desirable neighborhood

 Adding our indicator variable to our model:

(7.3) PRICE  β1   D  β 2 SQFT  e

 If our model is correctly specified, then:

 The value D = 0 defines the reference group, or base group.

 We could pick any base.

 Suppose we included both D and LD: 𝑃𝑅𝐼𝐶𝐸 = β1 + 𝛿𝐷 + 𝜆𝐿𝐷 + β2 𝑆𝑄𝐹𝑇 + 𝑒

 The variables D and LD are such that D + LD = 1.

 We have fallen into the dummy variable trap.

(7.5) 𝑃𝑅𝐼𝐶𝐸 = β1 + β2 𝑆𝑄𝐹𝑇 + 𝜸 𝑺𝑸𝑭𝑻 × 𝑫 + 𝑒

 Alternatively, it is called a slope-indicator variable or a slope dummy variable, because it

𝛽1 + (𝛽2 +𝛾)𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝐷 = 1

 (7.6) 𝑃𝑅𝐼𝐶𝐸 = β1 + δ𝑫 + β2 𝑆𝑄𝐹𝑇 + γ 𝑺𝑸𝑭𝑻 × 𝑫 + 𝑒

(𝛽1 +𝜹) + (𝛽2 +𝜸)𝑆𝑄𝐹𝑇 𝑤ℎ𝑒𝑛 𝑫 = 𝟏

We can apply indicator variables to a number of problems.

 Interpretation of BLACK x FEMALE : gender difference is more pronounced for

 Consider including regions in the wage equation:

(7.9) WAGE  β1  β 2 EDUC  δ1SOUTH  δ 2 MIDWEST  δ3WEST  e

 Failure to omit one indicator variable: the dummy variable trap.

 The omitted indicator variable, NORTHEAST, identifies the reference.

 We might ask whether there is really difference either in intercept or in slope

𝑊𝐴𝐺𝐸 = β1 + β2 𝐸𝐷𝑈𝐶 + δ1 𝐵𝐿𝐴𝐶𝐾 + δ2 𝐹𝐸𝑀𝐴𝐿𝐸

𝑊𝐴𝐺𝐸 = β1 + β2 𝐸𝐷𝑈𝐶 + δ1 𝐵𝐿𝐴𝐶𝐾 + δ2 𝐹𝐸𝑀𝐴𝐿𝐸

WAGE  β1  β 2 EDUC  δ1 BLACK  δ 2 FEMALE

(7.10) θ 2  EDUC  SOUTH   θ 3  BLACK  SOUTH 

𝛽1 + 𝛽2 𝐸𝐷𝑈𝐶 + 𝛿1 𝐵𝐿𝐴𝐶𝐾 + 𝛿2 𝐹𝐸𝑀𝐴𝐿𝐸 + 𝛾 𝐵𝐿𝐴𝐶𝐾 𝑋 𝐹𝐸𝑀𝐴𝐿𝐸

 Of particular relevance for testing the equivalence of two regressions is assumption

 In such a case, the usual F-test is not valid.

 We may want to include an effect for different seasons of the year.

capture year effects not otherwise measured in a model.

period. (e.g., Investment tax credit during certain periods)

(7.11) ln WAGE   β1  β 2 EDUC  δFEMALE

 What is the interpretation of δ?

 FEMALE is an intercept dummy variable, creating a parallel shift of the log-

linear relationship when FEMALE = 1.

 Yes and there are two solutions.

ln WAGE  FEMALES  ln WAGE  MALES  δ

 The estimated model is:

Interpretation: there is a 24.32% differential between male and female wages.

logarithms, and the antilog is the exponential function.

WAGEFEMALES WAGEMALES WAGEFEMALES  WAGEMALES

 We estimate the wage differential between males and females to be:

100(eδ – 1)% = 100(e-0.2432 – 1)% = -21.59%

 ‘‘How much does participation in a job-training program increase wages?’’

 Selection is affected by omitted unobserved factors that affect the dependent

treated as a control group.

 We could then compare the two groups.

 The key is a randomized controlled experiment.

 The ability to perform randomized controlled experiments in economics is limited

(7.12) 1 individual in treatment group