# Proof of de Chaisemartin and d’Haultfoeuille (2020) under staggered treatment adoption

\(\newcommand{\E}{\mathbb{E}}\) \(\newcommand{\indicator}[1]{ \mathbf{1}\{#1\} }\)

In my recent chapter in the *Handbook of Labor, Human Resources, and
Population Economics*, I included proofs of results from Goodman-Bacon
(*Journal of Econometrics*, 2021) and Sun and Abraham (*Journal of
Econometrics*, 2021) basically with the idea of trying to write these
results down in similar notation. I didn’t include the result from de
Chaisemartin and d’Haultfoeuille (*American Economic Review*, 2020) just
due to space limitations, but we are building on that result in a couple
of recent papers, and I write this sort of proof just infrequently
enough that I have to figure it out over and over. I’m going to just
include the proof for the oft-considered case with staggered treatment
adoption, no anticipation, and no units treated in the first period. I’m
also using the same notation I always use – if it’s confusing, check out
my handbook
chapter.
And, just to be clear, I’m not inventing anything here, just putting
down a proof of a nice result in a familiar notation for me.

The main assumption underlying all of this is the following **parallel
trends assumption**:

For all \(g \in \mathcal{G}\), and \(t=2,\ldots,\mathcal{T}\),

\[\E[\Delta Y_t(0) | G=g] = \E[\Delta Y_t(0)]\]which says that the path of untreated potential outcomes is the same for all groups across all time periods.

The interest here centers on interpreting \(\alpha\) from the following regression

\[Y_{it} = \theta_t + \eta_i + \alpha D_{it} + e_{it}\]Panel data versions of FWL-type arguments imply that we can remove the time- and unit- fixed effects by

\[\ddot{Y}_{it} = \alpha \ddot{D}_{it} + \ddot{e}_{it}\]where the notation indicates double-demeaning each of the variables, so, for example,

\[\ddot{D}_{it} = D_{it} - \bar{D}_i - \E[D_t] + \frac{1}{\mathcal{T}} \sum_{s=1}^{\mathcal{T}} \E[D_s]\]Now, population versions of FWL arguments imply that we can write

\[\alpha = \frac{\displaystyle \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it} Y_{it}]}{\displaystyle \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it}^2]}\]There are two useful properties of double-demeaned random variables that are useful below

\[\E[\ddot{D}_{it}] = 0 \qquad \textrm{and} \qquad \sum_{t=1}^T \ddot{D}_{it} = 0\]These are easy results to show (see, for example, my handbook chapter mentioned above for more details). Next, notice that, under staggered treatment adoption, \(\ddot{D}_{it}\) is fully determined by a unit’s group and knowledge of \(t\). In particular, notice that,

\[D_{it} = \indicator{G_i \leq t} \qquad \textrm{and} \qquad \bar{D}_i = \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \indicator{G_i \leq t} = \frac{\mathcal{T} - G_i + 1}{\mathcal{T}}\]Thus, define the function \(v(g,t) = \indicator{g \leq t} - \frac{\mathcal{T} - g + 1}{\mathcal{T}}\); this implies that \(D_{it} - \bar{D}_i = v(G_i,t)\). Next, define the function \(h(g,t) = v(g,t) - \displaystyle \sum_{g\in \mathcal{G}} v(g,t) p_g\), and notice that \(\E[D_t] - \displaystyle \frac{1}{\mathcal{T}} \sum_{s=1}^{\mathcal{T}} \E[D_s] = \E\big[ D_{it} - \bar{D}_i\big] = \E[v(G,t)]\). This implies that \(\ddot{D}_{it} = h(G_i,t)\), which gives us an easy way to switch between working with \(\ddot{D}_{it}\) and groups.

To show the result, most of the work will be for the numerator in the expression for \(\alpha\) above, and, in particular, notice that

\[\begin{aligned} \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it} Y_{it} ] &= \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it} Y_{it} ] - \underbrace{\frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it} Y_{iG_i-1} ]}_{=0} \\ &= \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \E[h(G_i,t) (Y_{it} - Y_{iG_i-1}) ] \\ &= \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} \E[h(g,t) (Y_{it} - Y_{ig-1}) | G=g] \, p_g \\ &= \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} h(g,t) \E[(Y_{it} - Y_{ig-1}) | G=g] \, p_g - \underbrace{\frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} h(g,t)\E[ (Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] \, p_g}_{=0} \\ &= \frac{1}{\mathcal{T}} \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} h(g,t) \Big( \E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] \Big) \, p_g \end{aligned}\]where the first equality holds by the property that \(\displaystyle \sum_{t=1}^{\mathcal{T}} \ddot{D}_{it} = 0\), the second equality holds by the definition of \(h\) and by combining terms, the third equality holds by the law of iterated expectations, we show that the extra term in the fourth equality is equal to 0 below, and the last equality holds by combining terms. Combining this with the denominator in the FWL expression for \(\alpha\), we have that

\[\alpha = \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} \frac{h(g,t)}{\sum_{s=1}^{\mathcal{T}} \E[h(G,s)^2]} \Big( \E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] \Big) \, p_g\]Note that the previous result is a decomposition in the sense that everything is computable, and \(\alpha\) will be exactly equal to the term on the right hand side (\(\hat{\alpha}\) will be equal to the sample analogue of the term on the RHS).

It’s also interesting to separate the previous expression based on whether a particular period is a post-treatment or a pre-treatment period. In particular, just by splitting the sum above (and noticing that the inside term is equal 0 for the never-treated group), we have that

\[\begin{aligned} \alpha &= \sum_{g \in \bar{\mathcal{G}}} \sum_{t=g}^{\mathcal{T}} p_g \frac{h(g,t)}{\sum_{s=1}^{\mathcal{T}} \E[h(G,s)^2]} \Big( \E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] \Big) \\ & + \sum_{g \in \bar{\mathcal{G}}} \sum_{t=1}^{g-1} p_g \frac{h(g,t)}{\sum_{s=1}^{\mathcal{T}} \E[h(G,s)^2]} \Big( \E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] \Big) \end{aligned}\]Next, let’s impose parallel trends. In particular, under parallel trends \(\E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] = ATT(g,t)\) for \(t \geq g\) (i.e., post-treatment periods for group \(g\)), and \(\E[(Y_{it} - Y_{ig-1}) | G=g] - \E[(Y_{it} - Y_{ig-1}) | G=\mathcal{T}+1] = 0\) for \(t < g\) (i.e., pre-treatment periods for group \(g\)). Then,

\[\alpha = \sum_{g \in \bar{\mathcal{G}}} \sum_{t=g}^{\mathcal{T}} \underbrace{p_g \frac{h(g,t)}{\sum_{s=1}^{\mathcal{T}} \E[h(G,s)^2]}}_{w(g,t)} ATT(g,t)\]where \(\bar{\mathcal{G}}\) denotes the set of all groups excluding \(G=\mathcal{T}+1\) (the never-treated group). This says that, under parallel trends, \(\alpha\) is equal to a weighted average of group-time average treatment effects. To conclude, let’s show some interesting properties of the weights, \(w(g,t)\). Consider the numerator of the the weights,

\[\begin{aligned} \sum_{g \in \bar{\mathcal{G}}} \sum_{t=g}^{\mathcal{T}} h(g,t) p_g &= \sum_{g \in \bar{\mathcal{G}}} \sum_{t=1}^{\mathcal{T}} h(g,t) \indicator{g \leq t} p_g \\ &= \sum_{t=1}^{\mathcal{T}} \sum_{g \in \mathcal{G}} h(g,t) \indicator{g \leq t} \indicator{g < \mathcal{T}+1}p_g \\ &= \sum_{t=1}^{\mathcal{T}} \E[h(G,t) \indicator{G \leq t}] \\ &= \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it} D_{it}] = \sum_{t=1}^{\mathcal{T}} \E[\ddot{D}_{it}^2] \end{aligned}\]This implies that

\[\sum_{g \in \bar{\mathcal{G}}} \sum_{t=g}^{\mathcal{T}} w(g,t) = 1\]or, in other words, the weights sum to 1. This is a good property for the weights to have. It is possible to discuss the weights in more detail though. I think it is fair to see the denominator in the weights as a normalizing constant. The \(p_g\) term indicates that, at least for this component of the weights, larger groups will tend to be given more weight. The most interesting term in the weights is \(h(g,t)\), and, for example, it is possible for \(h(g,t)\) to be negative (which would make \(w(g,t)\) negative as well). Recall that

\[h(g,t) = \indicator{g \leq t} - \frac{\mathcal{T} - g + 1}{\mathcal{T}} - \E[D_t] + \frac{1}{\mathcal{T}} \sum_{s=1}^{\mathcal{T}} \E[D_s]\]Also, notice that, for all the group-times that get non-zero weight, \(\indicator{g \leq t} = 1\), and the last term is constant across \(g\) and \(t\). This means that the most interesting terms are the two middle ones. Group-times that get negative weights (or the smallest weights) would be ones where \(\displaystyle \frac{T-g+1}{\mathcal{T}}\) is large (this would be the case for early treated groups) and when \(\E[D_t]\) is large (this would be large for later treated periods). This discussion suggests that, in a very simple case where \(\mathcal{T}=3\) and \(\mathcal{G} = \{2,3,4\}\), the \(ATT(g,t)\) at risk of having negative weights is \(ATT(g=2,t=3)\).