Difference in Differences (aka Double Difference) - Models the treatment effect by estimating
the difference between outcome measures at two time points for both the treated observations
and controls and then comparing the difference.
 Attempts to mimic random assignment with a treatment and comparison sample
 Uses OLS
 Requires either panel data or repeated cross-sections as well as pre-treatment data
Important Rules and Assumptions:
 Change in outcome is presumed to be the same for non-participants and for participants
if they had not participated (counterfactual)
 Whatever happened to the control group over time is what would have happened to the
treatment group in the absence of the program
 Control group must be well defined
 Exogeneity – assumes that X variables are not changed by the treatment
Pros
Allows assessment of a sample that was not
randomly assigned
Cons
Requires repeated observations and preintervention data
Relatively simple model that measures
treatment effects
External factors (e.g. changes in economic
conditions) that affect both groups in similar
ways will not be measured
Unobserved variables that remain constant
over time that are correlated with the outcome
will not bias the estimated effect
If there are expected differences in the way
variables affect the groups, then a simple
linear model will not suffice (must use
interactions)
Better able to detect small treatment effects
(because of repeated observation)
Vulnerable to errors caused by Serial
Correlation – errors associated in a given time
period carry over into future time periods
causing underestimation of the standard
errors and leading to the conclusion that
estimates are more precise than they actually
are
Flexible model allows for inclusion of
additional covariates
Subject to usual violations of the basic
assumptions (homoscedasticity, etc)
Alternative Treatment Effects Models:
Treatment effects models - statistical techniques used to analyze data that are not randomly
assigned
 Heckman
 Instrumental Variables
 Propensity Score Matching
Helpful links:
http://pareonline.net/getvn.asp?v=8&n=24
http://ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/sourcebooks/method_t
echniques/counterfactual_impact_evaluation/difference-in-differences/difference-indifferences_en.htm