(solution) where cmrt is the crime rate per head of population, unrtm is the

(solution) where cmrt is the crime rate per head of population, unrtm is the

where cmrt is the crime rate per head of population, unrtm is the unemployment rate of males, proyth is the proportion of youths, pp is the probability of punishment measured as (number of convictions)/(number of crimes reported). ? and ? are area and year fixed effects, where ?i equals one for area i and is zero otherwise for all i, and ?t is one in year t and zero for all other years for t = 2, ?, 22. ?1 is not included.

(a) What is the purpose of excluding ?1? What are the terms ? and ? likely to pick up? Discuss the advantages of using panel data for this type of investigation.

(b) Estimation by OLS results in the following output (coefficients of the fixed effects are not reported):