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Since there might be a simultaneity bias in the estimation of price elasticity, we decide to use an instrumental variable (IV) approach. Consider the variable
Since there might be a simultaneity bias in the estimation of price elasticity, we decide to use an instrumental variable (IV) approach. Consider the variable concen, which is a measure of market concentration. (Specifically, it is the share of business accounted for by the largest carrier.) Explain in words what we must assume to treat concen as a valid IV. Check whether concen satisfies the relevance assumption.
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