Learning Firm Conduct: Pass-Through as a Foundation for Instrument Relevance

Adam Dearing, Lorenzo Magnolfi, Daniel Quint, Christopher J. Sullivan and Sarah B. Waldfogel

No 32863, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Researchers often test firm conduct models using pass-through regressions or instrumental variables (IV) methods. The former has limited applicability; the latter relies on potentially irrelevant instruments. We show the falsifiable restriction underlying the IV method generalizes the pass-through regression, and cost pass-through differences are the economic determinants of instrument relevance. We analyze standard instruments' relevance and link instrument selection to target counterfactuals. We illustrate our findings via simulations and an application to the Washington marijuana market. Testing conduct using targeted instruments, we find the optimal ad valorem tax closely matches the actual rate.

JEL-codes: L0 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-ecm
Note: IO
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32863.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:32863

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32863
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().