Problems - Ch7

Create the simulated data set based on the Hotelling model used in section 3.

1. Estimate the relationship between price and demand. Does this estimated relationship make sense?

2. Using costs as an instrument, estimate the relationship between price and demand. Does this estimated relationship make sense?

3. Using value difference as an instrument, estimate the relationship between price and demand. Explain which process gives the best answer and why.

In the fishing data used in the problems in Chapter 5, explain why the estimate may not be reasonable.

1. Can you re-estimate the model using a instrumental variable approach?