arbiter
JournalsAccount

Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

Alexander MacKay & Nathan H. Miller

American Economic Journal: Microeconomics2025https://doi.org/10.1257/mic.20230024article
AJG 3ABDC A*
Weight
0.56

Abstract

We consider the identification of empirical models of supply and demand with imperfect competition. We show that a restriction on the covariance between unobserved demand and cost shocks can resolve endogeneity and identify the price parameter. We demonstrate how to employ this approach in estimation, and we compare it to the method of instrumental variables. Our formal results also indicate that weaker covariance restrictions can bound the price parameter. We illustrate the covariance restriction approach with applications to ready-to-eat cereal, cement, and airlines. (JEL C51, D12, L13, L61, L66, L93)

13 citations

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1257/mic.20230024

Or copy a formatted citation

@article{alexander2025,
  title        = {{Estimating Models of Supply and Demand: Instruments and Covariance Restrictions}},
  author       = {Alexander MacKay & Nathan H. Miller},
  journal      = {American Economic Journal: Microeconomics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1257/mic.20230024},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

Estimating Models of Supply and Demand: Instruments and Covariance Restrictions

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.56

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.60 × 0.4 = 0.24
M · momentum0.60 × 0.15 = 0.09
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.