Reducing bias in difference-in-differences models using entropy balancing

Matthew Cefalu, Brian G. Vegetabile, Michael Dworsky, Christine Eibner and Federico Girosi

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Abstract: This paper illustrates the use of entropy balancing in difference-in-differences analyses when pre-intervention outcome trends suggest a possible violation of the parallel trends assumption. We describe a set of assumptions under which weighting to balance intervention and comparison groups on pre-intervention outcome trends leads to consistent difference-in-differences estimates even when pre-intervention outcome trends are not parallel. Simulated results verify that entropy balancing of pre-intervention outcomes trends can remove bias when the parallel trends assumption is not directly satisfied, and thus may enable researchers to use difference-in-differences designs in a wider range of observational settings than previously acknowledged.

Date: 2020-11
New Economics Papers: this item is included in nep-ecm
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