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This question was created from Introductory-Econometrics Ch 16


Suppose that annual earnings and alcohol consumption are determined by the SEM
log(earnings) = B, + B alcohol + Beduc + u,
alcohol = y + y log(earnings) + yeduc + y,log(price) + uz,
where price is a local price index for alcohol, which includes state and local taxes.
Assume that educ and price are exogenous. If B , B,, y, 7,, and y, are all different from
zero, which equation is identified? How would you estimate that equation?

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