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As I have mentioned a few times on this blog, I teach the second-year qualifying research paper seminar in our PhD program.

As is the case of most other agricultural and applied economics (or even economics) programs worth their salt, after they are done with the bulk of their coursework, our students must demonstrate that they have made suitable proficiency as researchers by writing an entire research paper from start to finish, with the guidance of a faculty advisor of their choosing.

Because our program is an applied economics program, and because the bulk of agricultural and applied economics nowadays consists of applied microeconomics of the empirical kind, one of the questions I often have to answer in student emails is of the form: “Should I do A or B?” Specifically, questions like

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: