Estimate price–ETA trade-offs causally

Determine the causal link between price and expected arrival time (ETA). Devise an econometric approach that isolates how price affects ETA (and/or how ETA affects price) even though the two are simultaneously determined. Suggest legitimate instruments — for instance exogenous supply shocks arising from weather or driver outages, or price ceilings and floors imposed by regulators — then write out a 2SLS specification with suitable fixed effects and clustered errors, and spell out the exclusion restrictions. Demonstrate how to compute the ETA elasticity with respect to price, and carry out over-identification, weak-instrument, and stability diagnostics. Describe how the findings would shape surge-pricing policy.

Overview: This item assesses command of causal inference and econometric identification — covering simultaneity, endogeneity, instrumental variables, two-stage least squares (2SLS), elasticity estimation, and diagnostic testing — as applied to price–ETA dynamics in real-time ride-hailing marketplaces.