Z =      1 , if a baby is conceived in Oct. 1992 or later 0 , if a baby is conceived before Oct. 1992 (14) written as The first trimester of pregnancy has received particular attention in the medical literature on the effects of smoking. Mainous and Hueston (1994) demonstrated that smokers who quit smoking within the first trimester showed reductions in the proportion of preterm deliveries and low birth weight infants, compared with those who smoked beyond the first trimester. Also, Fingerhut et al. (1990) showed that approximately 70% of women who quit smoking during pregnancy do so as soon as they are aware of their pregnancy, which is mostly the first trimester of pregnancy. I take only singleton births into account and focus on births to mothers who are white, Hispanic or black, and whose age is between 15 and 44. The covariates that I use to control for observed characteristics include mothers’ race, education, age, martial status, birth year, sex of the baby, the ”Kessner” prenatal care index, pregnancy history, information on various diseases such as anemia, cardiac, diabete alcohol use, etc. 16 Descriptive statistics for this sample are reported in Table 3. After the tax increase, the smoking rate of pregnant women decreased from 23% to 16%. As expected, babies of nonsmokers are on average heavier than babies of smokers by 214 grams and furthermore, nonsmokers’ infant birth weight stochastically dominate smokers’ infant birth weight as shown in Figure 14. Also, smokers are on average 1.63 years younger, 1.27 years less educated than nonsmokers, and less likely to have adequate prenatal care in the Kessner index. Regarding race, black or Hispanic pregnant women are less likely to smoke than white women. Using the earlier notation, let Y be observed infant birth weight and D the nonsmoking indicator defined as In addition, let D$_{z}$ denote a potential nonsmoking indicator given Z = z. Let Y$_{0}$ be the potential infant birth weight if the mother is a smoker, while Y$_{1}$ the potential infant birth weight if the mother is not a smoker. As defined in (14), Z is a tax increase indicator during the first trimester. The k × 1 vector X of covariates consists of binary indicators for mother’s race, age, education, marital status, birth order, sex of the baby, ”Kessner” prenatal care index, drinking status, and medical risk factors. Since the treatment 5.4 Estimation D =      1 , for a nonsmoker 0 , for a smoker $^{16}$As an index measure for the quality of prenatal care, the Kessner index is calculated based on month of pregnancy care started, number of prenatal visits, and length of gestation. If the value 1 in the Kessner index indicates ’adequate’ prenatal care, while the value 2 and the value 3 indicate ’intermediate’ and ’inadequate’ prenatal care, respectively. For details, see Abrevaya (2006). 35