Problem 4 An analyst specifies that changes in educ cause wage to change, specifically following the economic model wage = Bo + Breduc + E. The

Problem 4An analyst specifies that changes in educ cause wage to change, specificallyfollowing the economic modelwage = Bo + Breduc + E.The analyst is interested in B1.The analyst thinks this is related to the data, and specifics the followingstatistical modelwage, = Po + Phreduc + uBo = Bo B1 – B1.The analyst is concerned that E[u | educ] / 0.i. In your own words, why is it a problem if E[u | educ] / 0?ii. Suppose that an analyst conducts an experiment involving a treatment andcontrol group. The treatment group receives free tuition. The control groupdoes not receive tuition, and pays the normal rate.Let Di be a variable denoting whether individual is in the treatment orcontrol group. Specifically, let D. = 1 denote that the individual is inthe treatment group and receives free tuition, and let D. = 0 denote theindividual is in the control group.Assume that the variable Di was randomly assigned to people by a coinflip. This means we can assume Di and ui are statistically independent.Using this setup, please describe an estimator for /1. Justify why you chosethis estimator.
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