st: Modeling simultaneity

["Pavlos C. Symeou" <p.symeou@gmail.com>]

Dear Statalisters,

warm wishes for a productive new year.

I want your insights wrt the following issue.

The very short description: I have two variables that influence one 
another and both of them affect a third one.

A detailed description: I am arguing that the ability of the firm 
to understand new knowledge (what I call Absorptive Capacity AC) 
influences the direction of the firm's market diversification 
(DIV). However, once the firm has diversified, it in turn 
influences the firm's ability to understand new knowledge (AC). I 
want to empirically account for this simultaneity when I try to 
examine the effect of AC and DIV on the performance of the firm.

I can use instrumental variables to model the simultaneity, but I 
don't know how to examine the final effects of AC and DIV on firm 
performance while controlling for simultaneity.

I look forward to receiving your comments.

Best,

Pavlos
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