Hi!

I have this statistical problem that has been bugging me for quite a while, and I would be extremly grateful if someone would be kind enough to help me.

Given this set-up:

y= c if y*>c

xiB+e if y*<c

where B= Beta

e= Epsilon

What is the variance of B when using OLS-estimation?

Note: I've attached a pdf with the equations below, where the numbering is the same, if that is preferred.

What I've been able to derive thus far is the following:

V(B)= sum[(xi^2/((sum(xi^2))^2) * V(yi) (1)

Using the law of total variance V(yi) should be:

V(yi)= V(E[yi|x]) + E(V[yi|x]) (2)

Where:

E(V[yi|xi])= V(c) * P(y*>c) + V(xiB+e) * P(y*<c) (3)

= Sigma^2 * P(y*<c) (4)

PROBLEM:Assuming my expression for E(V[yi|xi]) is correct, what does the expression for V(E[yi|x]) look like?