Comment on “On the pass‐through rate of the Nutrition North Canada subsidy”

Naylor, Deaton and Ker provide estimates of Nutrition North Canada subsidy pass‐through using data we collected and an identification strategy we devised. They propose an alternative econometric specification based on estimating passthrough for separate monopoly and non‐monopoly sub‐samples and aggregating the coefficients using subsidy share weights. They argue that this specification is more appropriate for estimating overall subsidy pass‐through and conclude that its application to our data provides evidence for full subsidy pass‐through. We show that their conclusions are not warranted by making two distinct but related points. First, we show that conclusions based on their specification are not robust to two changes in the estimating sample. Correcting two subsidy assignment and one monopoly classification error in the original data set, or using a time period more relevant for comparing heterogeneous effects across monopoly and non‐monopoly communities, leads to estimates that either reinforce our original finding of incomplete passthrough or that are too imprecise to be informative. Second, we provide a graphical illustration and power calculation to make a more general point about the appropriateness and limitations of the type of sub‐sample analysis they propose in settings with limited sample size and statistical power.