Broken or Fixed Effects?

This paper provides empirical evidence of an established theoretical result: in the presence of heterogeneous treatment effects, OLS is generally not a consistent estimator of the sample-weighted average treatment effect (SWE). We propose two alternative estimators that do recover the SWE in the presence of group-specific heterogeneity. We derive tests to detect the presence of heterogeneous treatment effects and to distinguish between the OLS and SWE. We document that heterogeneous treatment effects are common and the SWE is often statistically and economically different from the OLS estimate by extending eight influential papers. In all but one paper, there is statistically significant treatment effect heterogeneity; in five, the SWE is statistically different from the OLS estimator; and in five, the SWE and OLS estimators are economically different.