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Weights to address non‐parallel trends in panel difference‐in‐differences models

Ahlfeldt, Gabriel M. (2018) Weights to address non‐parallel trends in panel difference‐in‐differences models. CESifo Economic Studies, 2 (1). pp. 216-240. ISSN 1610-241X

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Identification Number: 10.1093/cesifo/ify013

Abstract

Causal inference using the difference‐in‐differences (DD) method relies on the untestable assumption of parallel counterfactual trends across units that are assigned to different treatments. To facilitate the application of the method in settings where the parallel‐trends assumption is seemingly violated, I suggest weighting observations such that the conditional correlations between treatments and pre‐treatment outcome trends are minimised, i.e. weighted trends are parallel. I evaluate the performance of a weighted parallel trends (WPT) DD estimator in a Monte Carlo study and provide an application to a case‐study context in which a benchmark estimate exists. The WPT DD approach can be applied in settings with multiple continuous treatment variables as well as to estimating time‐varying treatment effects.

Item Type: Article
Official URL: https://academic.oup.com/cesifo
Additional Information: © 2018 CESifo Group
Divisions: Geography & Environment
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD100 Land Use
JEL classification: N - Economic History > N7 - Transport, International and Domestic Trade, Energy, Technology, and Other Services > N73 - Europe: Pre-1913
N - Economic History > N7 - Transport, International and Domestic Trade, Energy, Technology, and Other Services > N74 - Europe: 1913-
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R14 - Land Use Patterns
R - Urban, Rural, and Regional Economics > R4 - Transportation Systems > R41 - Transportation: Demand, Supply, and Congestion; Safety and Accidents; Transportation Noise
Sets: Departments > Geography and Environment
Date Deposited: 26 Apr 2018 14:34
Last Modified: 20 Feb 2019 06:46
Projects: NI 938/2‐1, AZ.10.10.2.070
Funders: German Science Foundation, Fritz‐Thyssen‐Foundation
URI: http://eprints.lse.ac.uk/id/eprint/87666

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