Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects
The paper shows that linear regressions with group and period fixed effects estimate a weighted sum of treatment effects across cells where some weights can be negative. As a consequence the coefficient can be negative even when every cell-level effect is positive, undermining its interpretation as an average treatment effect. The authors propose an alternative estimator (DID_M) that is robust to heterogeneous effects and assess the empirical relevance of the negative-weighting problem.