In 1988 Paul Tracy and James Fox Conducted a Field

question 60

Short Answer

In 1988 Paul Tracy and James Fox conducted a field experiment to measure the extent to which auto body repair shops in Massachusetts inflate repair estimates for collision damage claims to insurance companies. The logic of the research involving obtaining estimates for body-damage repair costs for the same vehicles, under conditions when the damage was covered by insurance and when it was not. In short, they took 1987-model collision-damaged vehicles to selected auto body shops. At each shop, they obtained estimates of repair costs for two cars, one of which was presented as being covered by insurance and the other of which was not. Whether a car was presented as insured or uninsured at a given shop was determined by random assignment. (Statistical results clearly indicated that repair estimates were higher for vehicles presented as insured.)
a. What is the independent variable in this experiment?
b. What is the dependent variable?
c. Suppose that only male drivers in their early twenties posed as owners of the vehicles. What effect, if any, would this have on the internal and external validity of the study?

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Definitions:

Demand Curves

Demand curves graphically represent the relationship between the price of a good or service and the quantity demanded by consumers, typically showing a downward slope.

Herfindahl Index

A measure of market concentration, calculated by summing the squares of the market shares of each firm within the industry.

Concentration Ratio

A measure used in economics to assess the market share of the largest firms in an industry to determine the level of competition.

Monopolistically Competitive

Refers to a market structure where many firms sell products that are similar but not identical, allowing for elements of both competition and monopoly.