Class 12: Data on Smoking and Cigarette Prices

Today we’ll discuss demand estimation in the context of smoking. We’ll also introduce the idea of instrumental variables as a way to estimate causal effects when confronted with selection on unobservables.

Objectives

• Understand CDC and tax data sources
• Introduce the idea of instrumental variables

Activities

• Begin working with CDC Tax Burden data
• Derive initial instrumental variables estimate
• Define and explain the instrumental variable estimate as a ratio of a “reduced-form” to a “first-stage” estimate