Two-way Fixed Effects and Differences-in-Differences Estimators with Several Treatments / Clément de Chaisemartin, Xavier D'Haultfoeuille.

Format:

Book

Author/Creator:

de Chaisemartin, Clément.

Contributor:

National Bureau of Economic Research.

D'Haultfoeuille, Xavier.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30564.

NBER working paper series no. w30564

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

We study two-way-fixed-effects regressions (TWFE) with several treatment variables. Under a parallel trends assumption, we show that the coefficient on each treatment identifies a weighted sum of that treatment's effect, with possibly negative weights, plus a weighted sum of the effects of the other treatments. Thus, those estimators are not robust to heterogeneous effects and may be contaminated by other treatments' effects. We further show that omitting a treatment from the regression can actually reduce the estimator's bias, unlike what would happen under constant treatment effects. We propose an alternative difference-in-differences estimator, robust to heterogeneous effects and immune to the contamination problem. In the application we consider, the TWFE regression identifies a highly non-convex combination of effects, with large contamination weights, and one of its coefficients significantly differs from our heterogeneity-robust estimator.

Notes:

Print version record

October 2022.