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lcavol: log(cancer
volume)
lweight: log(prostate weight)
age: age
lbph: log(benign prostatic
hyperplasia amount)
svi: seminal vesicle invasion
lcp: log(capsular
penetration)
gleason: Gleason score
pgg45: percentage Gleason
scores 4 or 5
lpsa: log(prostate specific
antigen)
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The data set gives information on capital, labor and value added for each of three economic sectors: Food and kindred products (20), electrical and electronic machinery, equipment and supplies (36) and transportation equipment (37). For each sector:
Consider the model Vt =αKtβ1Ltβ2εt , where the subscript t indicates year, Vt is value added, Kt is capital, Lt is labor, and εt is an error term with E(log(εt))=0 and var(log(εt)) a constant. Assuming that the errors are independent, and taking logs of both sides of the above model, estimate β1 and β2 .
The model given in part a above is said to be of the Cobb-Douglas form. It is easier to interpret if β1 + β2 =1. Estimate β1 and β2 under this constraint.
Sometimes the model Vt =αγtKtβ1Ltβ2εt is considered, where γt is assumed to account for technological development. Estimate β1 and β2 for this model.
Estimate β1 and β2 in the model in part c, under the constraint β1 + β2 =1.
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