The weighted bacon estimation is not equal to the TWFE when the panel data is unbalanced. about bacondecomp HOT 4 CLOSED

Hi Ziyu,

Thanks for the reprex; always helpful for addressing. I'm under the impression that the Bacon decomposition relies on a balanced panel, so I wouldn't say the difference is necessarily an error. That being said, we should probably in the package check for a balanced panel and error otherwise to avoid this confusion

from bacondecomp.

Thanks a lot for the quick response. Can the conclusion in the original paper apply to the unbalanced case?

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While the general issues are still there, namely $D_{it}$ is residualized on unit and time dummies and hence you're doing some sort of average of heterogeneous treatment effects. So in this sense, the conclusions of "Be careful!!" definitely still holds. However, the algebra that produces the nice 2x2 comparisons with analytical weights relies on a balanced dataset.

from bacondecomp.

from bacondecomp.