Revisiting Event Study Designs

Citation:

Borusyak K, Jaravel X. Revisiting Event Study Designs. Working Paper.
event_studies_may8.pdf1.32 MB

Abstract:

A broad empirical literature uses "event study" research designs for treatment effect estimation, a setting in which all units in the panel receive treatment but at random times. We make four novel points about identification and estimation of causal effects in this setting and show their practical relevance. First, we show that in the presence of unit and time fixed effects, it is impossible to identify the linear component of the path of pre-trends and dynamic treatment effects. Second, we propose graphical and statistical tests for pre-trends. Third, we consider commonly-used "static" regressions, with a treatment dummy instead of a full set of leads and lags around the treatment event, and we show that OLS does not recover a weighted average of the treatment effects: long-term effects are weighted negatively, and we introduce a different estimator that is robust to this issue. Fourth, we show that equivalent problems of under-identification and negative weighting arise in difference-in-differences settings when the control group is allowed to be on a different time trend or in the presence of unit-specific time trends. Finally, we show the practical relevance of these issues in a series of examples from the existing literature, with a focus on the estimation of the marginal propensity to consume out of tax rebates.

 

Last updated on 01/13/2018