A Researcher Investigating the Determinants of Crime in the United

question 3

Essay

A researcher investigating the determinants of crime in the United Kingdom has data for
42 police regions over 22 years.She estimates by OLS the following regression $$\ln ( \mathrm { cmrt } ) _ { i t } = \alpha _ { i } + \phi _ { t } + \beta _ { 1 } \text { unrtm } _ { i t } + \beta _ { 2 } \text { proyth } _ { i t } + \beta _ { 3 } \ln ( p p ) _ { i t } + u _ { i t } ; i = 1 , \ldots , 42 , t = 1 , \ldots , 22$$
where $\mathrm { cmrt }$ is the crime rate per head of population, unrtm is the unemployment rate of males, proyth is the proportion of youths, $p p$ is the probability of punishment measured as (number of convictions)/(number of crimes reported). $\alpha$ and $\phi$ are area and year fixed effects, where $\alpha _ { i }$ equals one for area $i$ and is zero otherwise for all $i$ , and $\phi _ { t }$ is one in year $t$ and zero for all other years for $t = 2 , \ldots , 22 . \phi _ { 1 }$ is not included. (a) What is the purpose of excluding $\phi _ { 1 }$ ? What are the terms $\alpha$ and $\phi$ likely to pick up? Discuss the advantages of using panel data for this type of investigation.

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Definitions:

Net Income Earned

The total earnings of a company after all expenses and taxes have been deducted from total revenues, essentially the same as Net Income but emphasizing the acquisition aspect.

Common Stock

A type of equity security that represents ownership in a corporation, with voting rights and the potential to receive dividends.

Gain or Loss

The financial result that occurs when the selling price of an asset differs from its carrying amount on the books.

Equity Method

An accounting technique used to record investments in associate companies, recognizing the investor's share of the investee's profits or losses.