Estimating Dynamic Treatment Effects in Event Studies With Heterogeneous Treatment Effects
51 Pages Posted: 3 May 2018 Last revised: 24 Sep 2020
Date Written: September 22, 2020
Abstract
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.
Keywords: difference-in-differences, two-way fixed effects, pretrend test
JEL Classification: C13
Suggested Citation: Suggested Citation