Specify the regression equation as:Y= β_0 + β_1*[Time] + β_3*[Time*Intervention]+β_4*[Covariates]+ε

streutexw

streutexw

Open question

2022-08-20

Specify the regression equation to estimate the DiD as:
Y = β 0 + β 1 [ T i m e ] + β 3 [ T i m e I n t e r v e n t i o n ] + β 4 [ C o v a r i a t e s ] + ε
instead of:
Y = β 0 + β 1 [ T i m e ] + β 2 [ I n t e r v e n t i o n ] + β 3 [ T i m e I n t e r v e n t i o n ] + β 4 [ C o v a r i a t e s ] + ε
Our β 3 coefficient would still be yielding the DiD estimator right?

Answer & Explanation

elgrupomentasb

elgrupomentasb

Beginner2022-08-21Added 9 answers

The estimator from the first equation would be biased. One of the assumptions of difference-in-difference estimations is that potential variations between the treatment and control group are accounted for and constant over time (parallel trends assumption). That's the "constant difference in outcome". If you don't control for Intervention, then that constant difference assumption is no longer part of your parametric equation.
Similarly, you must control for Time because of the parallel trends assumption - both groups are expected to have evolved in the same way over time in the counterfactual that neither received a treatment.
Without either assumption, you no longer have a quasi-experimental design and an argument for the DiD estimator being an estimate of the causal effect of the treatment.

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