Question

Assume you have a dataset available that includes information on who is playing in a lottery, who wins a lottery and information on how much these individuals work over several time periods (both before and after the lottery).

a) How would you test whether winning the lottery affects labour supply and hence whether the predictions made , hold in the real world? Describe the method you would use and how you would use it.

b) Would you use the full sample of individuals in the data set or only the individuals that in the first place play lotteries?

Answer 1

Understanding the effect of pay and compensation stuns on work flexibly isn't simple. Hypothesis gives questionable forecasts about the impact of a compensation change on work gracefully if recreation is a typical decent. From one viewpoint, a compensation increment makes the individual more extravagant, bringing down the favored long periods of work (pay impact). Then again, an expansion in the pay rate builds the open door cost of not working, pushing up the favored number of working hours (replacement impact). Experimentally, it is dubious to assess how and to what degree changes in the compensation rate or in non-work salary influence work power interest. The fundamental issues are identified with estimation blunder in compensation and non-work salary, endogeneity of wages and non-work pay emerging from concurrence or connection with tastes for work, and imperceptibility of wages for non-laborers. Work gracefully changes because of changes in non-work salary might be instructive about the pay impact yet such changes might be endogenous. People with a solid inclination for work and frail inclinations for relaxation may collect more resources and thusly have more non-work pay.

a) Whereas, experimentation combined with questionnaire could lead toward conclusion for this kind of study although this could be long and expensive. As expermientation is descrpitve in nature whereas questionnaire built in a way that could lead to numerical interpretation to be precise could help a lot in studying the effect of lottery winning on labour supply. Ans would ultimately help in prediction and generalisation in real world.

b) Hence. in this particular case secondary quantitative data in respect to amount of lottery winning and before and after working hours of both lottery winner or those who play lottery as well as non- lottery winner/ player . Proportion of both would make study more effective and efficient.