Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2023-02-03
Number: 23-004/III
Author-Name: Timo Schenk
Author-Workplace-Name: University of Amsterdam
Title: Time-Weighted Difference-in-Differences:
Accounting for Common Factors in Short T Panels
Abstract: 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.
Classification-JEL:
Keywords: synthetic difference-in-differences, dynamic treatment effects, interactive fixed effects, panel data
File-URL: https://papers.tinbergen.nl/23004.pdf
File-Format: application/pdf
File-Size: 734.194 bytes
Handle: RePEc:tin:wpaper:20230004