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Unpublished Paper
Broken or Fixed Effects?
(2011)
  • Charles E Gibbons, University of California - Berkeley
  • Juan Carlos Suarez Serrato, University of California - Berkeley
  • Michael B Urbancic, University of California - Berkeley
Abstract

Though common in the applied literature, it is known that fixed effects regressions with a constant treatment effect generally do not consistently estimate the sample-weighted treatment effect. This paper demonstrates the extent of the difference between the fixed effect estimate and the sample-weighted effect by replicating nine influential papers from the American Economic Review. We propose a model with fixed effects interactions to identify the sample-weighted treatment effect and derive a test that discriminates between this estimate and the standard fixed effects estimate. For all 9 papers in our replication, at least one set of fixed effects interactions is jointly significant; in 6 of 9 papers, there is a sample-weighted estimate that is statistically different from the standard fixed effects estimate. In 7 of 9 papers, the differences are economically significant (larger than 10%); the average of the largest difference between the estimators from each paper is over 50% and the median is 19.5%. Our procedure does not markedly increase the variance of the estimators in 7 of 9 papers.

Keywords
  • Fixed effects,
  • average treatment effect,
  • treatment effect heterogeneity
Disciplines
Publication Date
2011
Citation Information
Charles E Gibbons, Juan Carlos Suarez Serrato and Michael B Urbancic. "Broken or Fixed Effects?" (2011)
Available at: http://works.bepress.com/cgibbons/1/