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Difference in difference
Balanced panels
i=1,2,3.N groups
t=1,2,3.T observations/group
Easiest to think of data as varying across
states/time
Write model as single observation
Yit= + Xit + ui + vt +it
Xit is (1 x k) vector
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Law of demand
Fundamental result of micro economic theory
Consumption should fall as prices rise
Generated from a theoretical model of
consumer choice
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Caution
In balanced panel, two-way fixed-effects
equivalent to subtracting
Within group means
Within time means
Adding sample mean
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* generate ln packs_pc
gen ln_packs_pc=ln(packs_pc)
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Number of obs
F( 71,
948)
Prob > F
R-squared
Adj R-squared
Root MSE
=
=
=
=
=
=
1020
226.24
0.0000
0.9443
0.9401
.06774
-----------------------------------------------------------------------------ln_packs_pc |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------_Istate_2 |
.0926469
.0321122
2.89
0.004
.0296277
.155666
_Istate_3 |
.245017
.0342414
7.16
0.000
.1778192
.3122147
Delete results
_Iyear_1998 | -.3249588
.0226916
-14.32
0.000
-.3694904
-.2804272
_Iyear_1999 | -.3664177
.0232861
-15.74
0.000
-.412116
-.3207194
_Iyear_2000 |
-.373204
.0255011
-14.63
0.000
-.4232492
-.3231589
ln_pcir |
.2818674
.0585799
4.81
0.000
.1669061
.3968287
s_f_rtax | -.0062409
.0002227
-28.03
0.000
-.0066779
-.0058039
_cons |
2.294338
.5966798
3.85
0.000
1.123372
3.465304
------------------------------------------------------------------------------
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Source |
SS
df
MS
-------------+-----------------------------Model | 3.99070575
2 1.99535287
Residual | 4.35024662 1018 .004273327
-------------+-----------------------------Total | 8.34095237 1020 .008177404
Number of obs =
F( 2, 1018)
Prob > F
R-squared
Adj R-squared
Root MSE
1020
= 466.93
= 0.0000
= 0.4784
= 0.4774
= .06537
-----------------------------------------------------------------------------y_tilda |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------x1_tilda |
.2818674
.05653
4.99
0.000
.1709387
.3927961
x2_tilda | -.0062409
.0002149
-29.04
0.000
-.0066626
-.0058193
------------------------------------------------------------------------------
SE on X1 0.05653*1.036262 = 0.05858
SE on X2 0.0002149*1.036262 = 0.0002227
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Problem set up
Cross-sectional and time series data
One group is treated with intervention
Have pre-post data for group receiving
intervention
Can examine time-series changes but,
unsure how much of the change is due to
secular changes
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Y
True effect = Yt2-Yt1
Estimated effect = Yb-Ya
Yt1
Ya
Yb
Yt2
t1
ti
t2
time
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Solution?
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Difference in Difference
Before
Change
After
Change
Difference
Group 1
(Treat)
Yt1
Yt2
Yt
Group 2
(Control)
Yc1
Difference
= Yt2-Yt1
Yc2
Yc
=Yc2-Yc1
Y
Yt Yc
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Y
Treatment effect=
(Yt2-Yt1) (Yc2-Yc1)
Yc1
Yt1
Yc2
Yt2
control
treatment
t1
t2
time
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Key Assumption
Control group identifies the time path of
outcomes that would have happened in
the absence of the treatment
In this example, Y falls by Yc2-Yc1 even
without the intervention
Note that underlying levels of outcomes
are not important (return to this in the
regression equation)
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Y
Yc1
Treatment effect=
(Yt2-Yt1) (Yc2-Yc1)
Yc2
Yt1
control
Treatment
Effect
Yt2
treatment
t1
t2
time
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Y
Estimated treatment
Yc1
Yc2
Yt1
Yt2
treatment
t1
t2
control
True
Treatment
Effect
time
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After
Change
Group 1
(Treat)
0+ 1
0+ 1+ 2+ 3 Yt
Group 2
(Control)
Difference
Difference
= 2+ 3
0+ 2
Yc
= 2
Y = 3
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Many periods
Intervention will occur in a group of states
but at a variety of times
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ui is a state effect
vt is a complete set of year (time) effects
Analysis of covariance model
Yit = 0 + 3 TitAit + ui + vt + it
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Group effects
Capture differences across groups that are
constant over time
Year effects
Capture differences over time that are
common to all groups
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Meyer et al.
Workers compensation
State run insurance program
Compensate workers for medical expenses
and lost work due to on the job accident
Premiums
Paid by firms
Function of previous claims and wages paid
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Concern:
Moral hazard. Benefits will discourage return to work
Problem:
given progressive nature of benefits, replaced wages
reveal a lot about the workers
Replacement rates higher in higher wage states
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Yi = Xi + Ri + i
Y (duration)
R (replacement rate)
Expect > 0
Expect Cov(Ri, i)
Higher wage workers have lower R and higher
duration (understate)
Higher wage states have longer duration and
longer R (overstate)
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Solution
Quasi experiment in KY and MI
Increased the earnings cap
Increased benefit for high-wage workers
(Treatment)
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Model
Yit = duration of spell on WC
Ait = period after benefits hike
Hit = high earnings group (Income>E 3)
Yit = 0 + 1Hit + 2Ait + 3AitHit + 4Xit + it
Diff-in-diff estimate is 3
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Questions to ask?
What parameter is identified by the quasiexperiment? Is this an economically
meaningful parameter?
What assumptions must be true in order
for the model to provide and unbiased
estimate of 3?
Do the authors provide any evidence
supporting these assumptions?
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Tyler et al.
Identification strategy
Use variation across states in pass rates
to identify benefit of a GED
High scoring people would have passed
the exam regardless of what state they
lived in
Low scoring people are similar across
states, but on is granted a GED and the
other is not
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NY
CT
Increasing scores
Passing score NY
Passing Scores CT
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Difference in Difference
CT
NY
Difference
Test score D
is low
(D-C)
Test score B
is high
(B-A)
Difference
(D-C)
(B-A)
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i is state, t is year
Yit is per capita alcohol consumption
INC is per capita income
TAX is tax paid per gallon of alcohol
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Some Keys
Model requires that untreated groups
provide estimate of baseline trend would
have been in the absence of intervention
Key find adequate comparisons
If trends are not aligned, cov(TitAit,it) 0
Omitted variables bias
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Unrestricted model
Pretreatment years so TstAst not in model
M pre-treatment years
Let Wt=1 if obs from year t
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Econometric model
Difference in difference
Have data before/after law goes into effect
Treated group disabled
Control non-disabled
Treatment variable is interaction
Diabled * 1992 and after
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Data
March CPS
Asks all participants employment/income
data for the previous year
Earnings, weeks worked, usual hours/week
* the authors interact the disabled dummy with all year effect;
* and include all interactions in the model. if the d-in-d;
* assumptions are correct, the interactions prior to 1992 should;
* all be zero;
gen d_y88=_Iyearw_1988*disabled;
.
(repeated text deleted)
.
. gen d_y94=_Iyearw_1994*disabled;
. gen d_y95=_Iyearw_1995*disabled;
. gen d_y96=_Iyearw_1996*disabled;
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Table 2
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Number of obs
F( 19,195694)
Prob > F
R-squared
Adj R-squared
Root MSE
= 195714
= 1346.15
= 0.0000
= 0.1156
= 0.1155
= 15.363
-----------------------------------------------------------------------------wkswork1 |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------Year effects 1988 1996 delete
disabled |
-23.7888
.500911
-47.49
0.000
-24.77057
-22.80703
d_y88 | -.7371178
.7328373
-1.01
0.314
-2.173461
.6992259
d_y89 | -.7552183
.7189482
-1.05
0.294
-2.16434
.653903
d_y90 | -2.612262
.7073555
-3.69
0.000
-3.998661
-1.225862
d_y91 | -2.176184
.7040983
-3.09
0.002
-3.556199
-.7961677
d_y92 | -1.567489
.700199
-2.24
0.025
-2.939862
-.1951153
d_y93 | -3.113591
.707372
-4.40
0.000
-4.500023
-1.727159
d_y94 | -4.044365
.7328552
-5.52
0.000
-5.480743
-2.607986
d_y95 | -3.563268
.7626032
-4.67
0.000
-5.057952
-2.068584
d_y96 | -4.472773
.7514502
-5.95
0.000
-5.945597
-2.999948
_cons |
43.86073
.1085045
404.23
0.000
43.64807
44.0734
------------------------------------------------------------------------------
Disability law
interactions
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Regression statement
.
.
.
.
Source |
SS
df
MS
-------------+-----------------------------Model | 6027911.45
11
547991.95
Residual | 46198625.5195702
236.06619
-------------+-----------------------------Total |
52226537195713 266.852672
Number of obs
F( 11,195702)
Prob > F
R-squared
Adj R-squared
Root MSE
= 195714
= 2321.35
= 0.0000
= 0.1154
= 0.1154
= 15.364
-----------------------------------------------------------------------------wkswork1 |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------_Iyearw_1988 |
.3950318
.1526629
2.59
0.010
.0958162
.6942475
Do not show all year effects
_Iyearw_1996 |
1.293786
.1604476
8.06
0.000
.9793123
1.608259
disabled | -25.07033
.2274473 -110.22
0.000
-25.51612
-24.62454
treatment | -1.970964
.3280719
-6.01
0.000
-2.613977
-1.327951
_cons |
43.92087
.1064727
412.51
0.000
43.71218
44.12955
------------------------------------------------------------------------------
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. gen disabled_state=100*disabled+statefip;
reg wkswork1 _Ia* _Iy* _Ir* white black hispanic lths
hsgrad somecol disabled treatment, cluster(statefip);
.reg wkswork1 _Ia* _Iy* _Ir* white black hispanic lths
hsgrad somecol disabled treatment,
cluster(disabled_state);
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Dranove et al.
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Introduction
Increased use of report cards, especially
in health care and education
Two best examples:
NCLB legislation for education
NYs publication of coronary artery bypass
graft (CABG) mortality rates for surgeons and
hospitals
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Against
May give incomplete evidence. Can risk adjust
but not on all characteristics
Docs can manipulate rankings by selecting
patients with the highest expected success rate,
decreasing access to care for the sickest patients
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This paper
Uses data on al heart attack patients in Medicare
in from 1987-94
Impact of reports cards in NY and PA
Examines three sets of outcomes associated with
report cards
Matching of patients to providers: is there a match of
the sickest patients to best providers?
Incidence and quantity of CABG
Do total surgeries go up or down?
Shift to healthier patients?
Report Cards
NY
Hospital specific, risk adjusted CABG
mortality rates based on 1990
Physician specific rates in 1992
Data
Population potentially impacted are those
with acute myocardial infarctions (AMI) in
Medicare
Easily obtained from Medicare claims data
Large fraction treated with CABG
Selection into the sample unlikely impacted
by report cards
Physicians treating AMI likely to have multiple
treatment options (e.g., heart cath., medical
treatment, etc.)
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Hospital Model
ln(hlst ) As Bt Z lst g Lst p N st q elst
l hospital , s state, t time
hlst mean hospital level severity AMI patients
As , Bt are state, time effects
Z lst are hospital characteristics
N st is a polynomial in no. of hospitals
Lst law dummy, 1 in 91 in NY , 93 in PA
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Individual model
Ckst ) As Bt Z kst g Lst p ekst
k person, s state, t time
Ckst 1 if patient had CABG w / in year of AMI
As , Bt are state, time effects
Z kst are person characteristics
Lst law dummy, 1 93 in both NY / PA
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