Time-Weighted Difference-in-Differences: Accounting for Common Factors in Short T Panels
This paper proposes a time-weighted difference-in-differences (TWDID) estimation approach that is robust against interactive fixed effects in short T panels. Time weighting substantially reduces both bias and variance compared to conventional DID estimation through balancing the pre-treatment and post-treatment unobserved common factors. To conduct valid inference on the average treatment effect, I develop a correction term that adjusts conventional standard errors for weight estimation uncertainty. Revisiting a study on the effect of a cap-and-trade program on NOx emissions, TWDID estimation reduces the standard errors of the estimated treatment effect by 10% compared to a conventional DID approach. In a second application I illustrate how to implement TWDID in settings with staggered adoption of the treatment.
Year of publication: |
2023
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Authors: | Schenk, Timo |
Publisher: |
Amsterdam and Rotterdam : Tinbergen Institute |
Subject: | synthetic difference-in-differences | dynamic treatment effects | interactive fixed effects | panel data |
Saved in:
freely available
Series: | Tinbergen Institute Discussion Paper ; TI 2023-004/III |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 1835099955 [GVK] hdl:10419/273815 [Handle] RePEc:tin:wpaper:20230004 [RePEc] |
Source: |
Persistent link: https://www.econbiz.de/10014321777
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