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Parallel Trends and Dynamic Choices

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  • Philip Marx
  • Elie Tamer
  • Xun Tang

Abstract

Difference-in-differences is a common method for estimating treatment effects, and the parallel trends condition is its main identifying assumption: the trend in mean untreated outcomes is independent of the observed treatment status. In observational settings, treatment is often a dynamic choice made or influenced by rational actors, such as policy-makers, firms, or individual agents. This paper relates parallel trends to economic models of dynamic choice. We clarify the implications of parallel trends on agent behavior and study when dynamic selection motives lead to violations of parallel trends. Finally, we consider identification under alternative assumptions that accommodate features of dynamic choice.

Suggested Citation

  • Philip Marx & Elie Tamer & Xun Tang, 2022. "Parallel Trends and Dynamic Choices," Papers 2207.06564, arXiv.org, revised Aug 2023.
    • Handle: RePEc:arx:papers:2207.06564
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    References listed on IDEAS

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    Cited by:

    1. Pedro Picchetti, 2023. "Identification in Endogenous Sequential Treatment Regimes," Papers 2311.18555, arXiv.org.
    2. Kyunghoon Ban & D'esir'e K'edagni, 2022. "Robust Difference-in-differences Models," Papers 2211.06710, arXiv.org, revised Aug 2023.

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