Difference-in-Differences with Compositional Changes

Abstract: This paper studies difference-in-differences (DiD) setups with repeated cross-sectional data and potential compositional changes across time periods. We begin our analysis by deriving the efficient influence function and the semiparametric efficiency bound for the average treatment effect on the treated (ATT). We introduce nonparametric estimators that attain the semiparametric efficiency bound under mild rate conditions on the estimators of the nuisance functions, exhibiting a type of rate doubly robust (DR) property. Additionally, we document a trade-off related to compositional changes: We derive the asymptotic bias of DR DiD estimators that erroneously exclude compositional changes and the efficiency loss when one fails to correctly rule out compositional changes. We propose a nonparametric Hausman-type test for compositional changes based on these trade-offs. The finite sample performance of the proposed DiD tools is evaluated through Monte Carlo experiments and an empirical application. We consider extensions of our framework that accommodate double machine learning procedures with cross-fitting, and setups when some units are observed in both pre- and post-treatment periods. As a by-product of our analysis, we present a new uniform stochastic expansion of the local polynomial multinomial logit estimator, which may be of independent interest.