Treatment-effect heterogeneity and interactive fixed effects: Can we control for too much?
处理效应异质性与交互固定效应:会不会控制过度?
This paper studies the interactive fixed effects (IFE) estimator in a panel-data setting with heterogeneous treatment effects. We show that, if the treatment-effect heterogeneity admits a linear factor structure, the IFE estimator could fail to recover the average treatment effect on the treated units. The problem arises because the interactive fixed effects absorb the heterogeneity in the treatment effect, creating a \textit{bad-control} problem. With time-invariant factors…