Estimating dynamic treatment effects in event studies with heterogeneous treatment effects

To estimate the dynamic effects of an absorbing treatment, researchers often use two-way fixed effects regressions that include leads and lags of the treatment. We show that in settings with variation in treatment timing across units, the coefficient on a given lead or lag can be contaminated by eff...

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Bibliographic Details
Published inJournal of econometrics Vol. 225; no. 2; pp. 175 - 199
Main Authors Sun, Liyang, Abraham, Sarah
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.12.2021
Elsevier Sequoia S.A
Subjects
Contamination
Difference-in-differences
econometrics
Estimating techniques
Impact analysis
lead
Pretrend test
Quantitative analysis
Regression analysis
temporal variation
Two-way fixed effects
Pretrend test
Two-way fixed effects
Difference-in-differences
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Summary:To estimate the dynamic effects of an absorbing treatment, researchers often use two-way fixed effects regressions that include leads and lags of the treatment. We show that in settings with variation in treatment timing across units, the coefficient on a given lead or lag can be contaminated by effects from other periods, and apparent pretrends can arise solely from treatment effects heterogeneity. We propose an alternative estimator that is free of contamination, and illustrate the relative shortcomings of two-way fixed effects regressions with leads and lags through an empirical application.
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ISSN:0304-4076
1872-6895
DOI:10.1016/j.jeconom.2020.09.006