Use the data in VOTE1.RAW for this exercise.
(i) Consider a model with an interaction between expenditures:
voteA 5 b0 1 b1prtystrA 1 b2expendA 1 b3expendB 1 b4expendAexpendB 1 u.
What is the partial effect of expendB on voteA, holding prtystrA and expendA fixed? What is the partial effect of expendA on voteA? Is the expected sign for b4 obvious?
(ii) Estimate the equation in part (i) and report the results in the usual form. Is the
interaction term statistically significant?
(iii) Find the average of expendA in the sample. Fix expendA at 300 (for $300,000). What is the estimated effect of another $100,000 spent by Candidate B on voteA? Is this a large effect?
(iv) Now fix expendB at 100. What is the estimated effect of ∆expendA 5 100 on
voteA? Does this make sense?
(v) Now, estimate a model that replaces the interaction with shareA, Candidate A’s percentage share of total campaign expenditures. Does it make sense to hold both expendA and expendB fixed, while changing shareA?
(vi) (Requires calculus) In the model from part (v), find the partial effect of expendB on voteA, holding prtystrA and expendA fixed. Evaluate this at expendA 5 300 and expendB 5 0 and comment on the results.