The role of parallel trends in event study settings: An application to environmental economics

Michelle Marcus and Pedro Sant'Anna ()

Papers from arXiv.org

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 (PTA), 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'' vs. ``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 derived 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.

Date: 2020-09
New Economics Papers: this item is included in nep-ecm and nep-env
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Citations: View citations in EconPapers (5)

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http://arxiv.org/pdf/2009.01963 Latest version (application/pdf)

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Journal Article: The Role of Parallel Trends in Event Study Settings: An Application to Environmental Economics (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2009.01963

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