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/lp/university-of-chicago-press/the-role-of-parallel-trends-in-event-study-settings-an-application-to-bwqy4WtVjv
- Publisher
- University of Chicago Press
- Copyright
- © 2021 by The Association of Environmental and Resource Economists. All rights reserved.
- ISSN
- 2333-5955
- eISSN
- 2333-5963
- DOI
- 10.1086/711509
- Publisher site
- See Article on Publisher Site
Abstract
Difference-in-differences (DID) research designs usually rely on variation of treatment timing such that, after making an appropriate parallel trends assumption, one can identify, estimate, and make inference about causal effects. In practice, however, different DID procedures rely on different parallel trends assumptions (PTAs), and recover different causal parameters. In this paper, we focus on staggered DID (also referred as event studies) and discuss the role played by the PTA in terms of identification and estimation of causal parameters. We document a “robustness” versus “efficiency” trade-off in terms of the strength of the underlying PTA and argue that practitioners should be explicit about these trade-offs whenever using DID procedures. We propose new DID estimators that reflect these trade-offs and derive their large sample properties. We illustrate the practical relevance of these results by assessing whether the transition from federal to state management of the Clean Water Act affects compliance rates.
Journal
Journal of the Association of Environmental and Resource Economists – University of Chicago Press
Published: Mar 1, 2021