Question

Answer the following questions.

New Zealand’s government declares that it has estimated the following model using data on all countries and has estimated ?1̂=0.002 with an ?^2=0.60.
ln(????? ??? ??????)=?0+?1?????? ??? ??????+?

According to the agency, “better policing will hence decrease New Zealand’s crime rate”.
1) What is the interpretation of the ?^2 in this model? Do you think that the ?^2 value supports the statement made by the agency?

2) What problem/s do you see with the statement issued by the agency?

3) Can you suggest an improved model to analyse the relationship between the crime rate and policing?

Answer 1

1.The ?^2=0.60 says that 60% of variation in the dependent variable can successfully be explained by the independent variable i.e. police per capita. However, the dependent variable and independent variable have a positive relationship which does not  support the statement made by the agency

2. ln(????? ??? ??????)=?0+?1?????? ??? ??????+?

According to this equation, if police per capita increases then growth rate of crime per capita increases by ?1 x 100 = 0.002 x 100 = 0.2% per year.

3. Crime per capita is not only affected by police activities. Hence, the model should add other factors that affect crime rates to avoid omitting relevant variables.