Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects
35 Pages Posted: 24 Mar 2018 Last revised: 1 Nov 2019
Date Written: October 30, 2019
Linear regressions with period and group fixed effects are widely used to estimate treatment effects. We show that they estimate weighted sums of the average treatment effects (ATE) in each group and period, with weights that may be negative. Due to the negative weights, the linear regression coefficient may for instance be negative while all the ATEs are positive. We propose another estimator that solves this issue. In the two applications we revisit, it is significantly different from the linear regression estimator.
Keywords: Linear Regressions, Fixed Effects, First Difference, Differences-in-Differences, Heterogeneous Treatment Effects
JEL Classification: C21, C26
Suggested Citation: Suggested Citation