10.9 Consider a supply model for edible chicken, which the U.S. Department o:

Agriculture calls "broilers." The dataf or this exercisei s in the file newbroilerdu:.

which is adaptedf rom the datap rovidedb y Epple and McCallum (2006).7T he dar.

area nnual,1 950-2001,b ut in the estimationsu sed ataf rom 1960-1999.T he suppll equation is II(QPROD,): 9r * B2ln(P,) + 93ln(PF,) -t 9+TIMEI +ln(epROD,_r ) - ei where QPROD : a1gregatep roduction of young chickens,P : real,p rice inder oi fresh chicken, PF : real price index of broiler feed, TIME : l, . . . .52. This supplr equation is dynamic, with lagged production on rhe right-hand side. This predetermined variable is known at time / and is treated as exogenous. TLIIE,-
1,2,. . .,52) is includedt o capturete chnicapl rogressin productionS. omep orenrial externalinstrumentavl ariablesa rel n(I,) whereI is real per capitai ncome:l nrpB, , where PB is the real price of beef; POPGRO : percentagep opulation _gro\h from year t - 1 to l; 1n(P,-1) : lagged log of real price of chicken; In(EXPIS r - log of exports of chicken.

(a) Estimatet hes upplye quationb y leasts quaresD. iscusst hee srimarionr esults.A re the signs and significance what you anticipated?

(b) Estimatet he supplye quationu sing an instrumentalv ariablese stimatorw ith all available instruments. Compare these results to those in (a).

(c) Test the endogeneity of ln(P,) using the regression-basedH ausman test describedin Sectioni 0.4.1.

(d) Check whether the instrumentsa re adequate,u sing the test for weak instruments describedi n Section 10.4.2.W hat do you conclude?

(e) Do you suspect the validity of any instruments on logical grounds? If so, which ones, and why? Check the instrument validity using the test procedure described in Section 10.4.3.