st: Modeling simultaneity

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

Dear Statalisters,

I was wondering whether any of you can help me with this.

I have three variables: Absorptive capacity, Diversification, and 
Performance. I am arguing that the first two are simultaneously 
determined and they influence the third one.

Explicitly, I am arguing that the ability of the firm to understand 
new knowledge (what is called 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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