Suppose one study uses data on prices and cigarette smoking behavior to estimate the overall effect of cigarette-price changes on smoking,while another uses the same data to decompose the effect into income and substitution effects.The first study provides _________ estimates; the second provides __________ estimates.

Question

Quizplus · Accepted Answer

The first study that estimates the overall effect of cigarette-price changes on smoking is a reduced-form analysis, which does not take into account the mechanisms underlying the relationship between prices and smoking. The second study that decomposes the effect into income and substitution effects is a structural analysis, which explicitly models the behavioral responses to price changes. Therefore, the first study provides reduced-form estimates, while the second provides structural estimates.

Suppose One Study Uses Data on Prices and Cigarette Smoking