Econometrics Question-Essay

1.  Can money buy a winning baseball team?
To answer this question, download the baseballsalaries.dta dataset from the class website (in the
homework folder).  This dataset has the payroll for 30 MLB teams and their regular season
win/loss record.  The dataset has 5 variables.  The variable team contains the team name,
playoffs is a variable which is 1 if the team made the playoffs and 0 otherwise, payroll is the
amount the team spent on player salaries, and wins and losses count up how many games the
team won and lost during the regular season.
a. What is the average payroll for these thirty teams?  (note: the payroll variable is in thousands
of dollars)  Is there a lot of variation in payroll or minimal variation in payroll?
b.  What is the average percentage of games won by a team?
c.  Graph a scatterplot of the team’s winning percentage versus payroll.  (hint: type help graph
twoway in Stata).
d.  What is the difference in average payroll for teams which make the playoffs compared to
teams which do not?  Is this difference (i) large in a real world sense, (ii) statistically significant,
and (iii) likely to be causal?

2.  Stock and Watson, exercise E3.1 (the “E” before 3.1 indicates an empirical exercise)

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