The Treatment Effect, the Cross Difference, and the Interaction Term in Nonlinear “Difference-in-Differences” Models
AbstractI demonstrate that Ai and Nortonâs (2003) point about cross differences is not relevant for the estimation of the treatment effect in nonlinear âdifference-in-differencesâ models such as probit, logit or tobit, because the cross difference is not equal to the treatment effect, which is the parameter of interest. In a nonlinear âdifference-in-differencesâ model, the treatment effect is the cross difference of the conditional expectation of the observed outcome minus the cross difference of the conditional expectation of the potential outcome without treatment. Unlike in the linear model, the latter cross difference is not zero in the nonlinear model. It follows that the sign of the treatment effect in a nonlinear âdifference-in-differencesâ model with a strictly monotonic transformation function is equal to the sign of the coefficient of the interaction term of the time and treatment group indicators. The treatment effect is simply the incremental effect of the coefficient of the interaction term.
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Bibliographic InfoPaper provided by ERMES, University Paris 2 in its series Working Papers ERMES with number 1004.
Date of creation: 2010
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Other versions of this item:
- Puhani, Patrick A., 2012. "The treatment effect, the cross difference, and the interaction term in nonlinear “difference-in-differences” models," Economics Letters, Elsevier, vol. 115(1), pages 85-87.
- Puhani, Patrick A., 2008. "The Treatment Effect, the Cross Difference, and the Interaction Term in Nonlinear “Difference-in-Differences” Models," IZA Discussion Papers 3478, Institute for the Study of Labor (IZA).
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- H0 - Public Economics - - General
- I0 - Health, Education, and Welfare - - General
- J0 - Labor and Demographic Economics - - General
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