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Estimating dynamic treatment effects in event studies with heterogeneous treatment effects

2020; Elsevier BV; Volume: 225; Issue: 2 Linguagem: Inglês

10.1016/j.jeconom.2020.09.006

1872-6895

Liyang Sun, Sarah Abraham,

Statistical Methods and Bayesian Inference

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.