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A few weeks ago, my posts on quinoa got a second life after a friend of mine linked to them in a Reddit thread titled “TIL Demand for quinoa in Western nations has pushed up prices to such an extent that poorer people in Peru and Bolivia, where quinoa is from, can no longer afford their staple crop.” (Note: TIL stands for “Today I learned that …” – MFB.)

A few thoughts: First, my friend’s comment linking to my posts on quinoa is thankfully the top-ranked comment, which indicates that there is a certain hunger out there for more accurate information than the unfounded emotional appeals peddled by some in the media. Second, Reddit generates a crazy amount of traffic. As in, my blog stats went nuts for a couple days after that thread became active—the folks at Reddit are not joking when they call themselves “the front page of the Internet.”

If you have any patience to read the entire thread of comments, you’ll notice that something that comes up a bit too frequently is comments of the sort “Yeah, sure, maybe farmers are better off, but traders are the ones making the most money off of this.” Those comments typically imply that traders getting rich is a bad thing.

One of the worst things you can do as an applied microeconomist is to re-use someone else’s instrumental variable (IV) unthinkingly, without making sure that the IV actually works in your application.

One of the IVs that has gotten overused in recent years—to the point where it eventually became a punchline—is rainfall. After all, rainfall is exogenous, because there is no way on earth your variable of interest actually causes rainfall, right?

Right?

There are two mistakes with that reasoning:

A few weeks ago, I had a post about the effect of soda taxes on consumer behavior. In that post, I discussed an article by Tamar Haspel in the Washington Post for which I had been interviewed after looking at some European data showing that soda taxes had little to no statistical or economic impact on soda sales. At the time, I wished I’d had more time to investigate the question more deeply. As it turns out, someone else did so:

The typical analysis on the effectiveness of soda taxes relies on price elasticity estimates from static demand models, which ignores consumers’ inventory behaviors and their persistent tastes. This article provides estimates of the relevant price elasticities based on a dynamic demand model that better addresses potential intertemporal substitution and unobservable persistent heterogeneous tastes. It finds that static analyses overestimate the long-run own-price elasticity of regular soda by 60.8%, leading to overestimated consumption reduction of sugar-sweetened soft drinks by up to 57.9% in some cases. Results indicate that soda taxes will raise revenue but are unlikely to substantially impact soda consumption.

This is from an article by Emily Yucai Wang, an assistant professor of resources economics at UMass Amherst, in the very serious RAND Journal of Economics. Just as I found/discussed/speculated/posited for the Washington Post, soda taxes appear to have no effect on consumption. What is more important here is that the author looks at storage, which is an important component of the consumption of soda, and which can have important dynamic effects—after all, soda can be stored for very long periods of time, unlike most staple crops in developing countries.