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An instrument is required to be correlated with the endogenous variable but not the error term in the outcome equation (for detailed presentation of this method, see any econometric textbook, e.g., [25])

Commercial smuggling is a large-scale criminal activity that can involve counterfeit state tax stamps, counterfeit versions of legitimate brands, and moving prohibited products.[14] The Mackinac Center provides several anecdotes of smuggling activity over the many editions of its report, including a prison guard caught smuggling cigarettes into prisons, a Maryland police officer running illicit cigarettes while on duty, and a Virginia man hiring a contract killer over a cigarette smuggling dispute.[15] Cigarette Smuggling Costs State Governments Billions of Dollars Each Year The inbound flow of cigarettes not appropriately taxed by California and New York cost each state roughly $1.3 and $1 billion, respectively, each year in lost revenue

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