Two-way fixed-effect modelsDifference in difference课件.ppt

Yit = β0 + β1 INCit + β2 INCit-1 + β1 TAXit + β2 TAXit-1 + ui + vt + εit i is state, t is year Yit is per capita alcohol consumption INC is per capita income TAX is tax paid per gallon of alcohol 精品文档 精品文档 精品文档 Some Keys Model requires that untreated groups provide estimate of baseline trend would have been in the absence of intervention Key – find adequate comparisons If trends are not aligned, cov(TitAit,εit) ≠0 Omitted variables bias How do you know you have adequate comparison sample? 精品文档 Do the pre-treatment samples look similar Tricky. D-in-D model does not require means match – only trends. If means match, no guarantee trends will However, if means differ, aren’t you suspicious that trends will as well? 精品文档 Develop tests that can falsify model Yit = β0 + β3 TitAit + ui + vt + εit Will provide unbiased estimate so long as cov(TitAit, εit)=0 Concern: suppose that the intervention is more likely in a state with a different trend If true, coefficient may ‘show up’ prior to the intervention 精品文档 Add “leads” to the model for the treatment Intervention should not change outcomes before it appears If it does, then suspicious that covariance between trends and intervention 精品文档 Yit = β0 + β3 TitAit + α1TitAit+1 + α2 TitAit+2 + α3TitAit+3 + ui + vt + εit Three “leads” Test null: Ho: α1=α2=α3=0 精品文档 Grinols and Mustard Impact of a casino opening on crime rates Concern: casinos are not random – opened in struggling areas Data at county/year level – simple dummy that equals 1 in year of intervention, =0 otherwise 精品文档 精品文档 精品文档 精品文档 精品文档 Pick control groups that have similar pre-treatment trends Most studies pick all untreated data as controls Example: Some states raise cigarette taxes. Use states that do not change taxes as controls Example: Some states adopt welfare reform prior to TANF. Use all non-reform states as controls Intuitive but not likely correct 精品文档 Can use econometric procedure to pick controls Appealing if interventions are d