Suppose that there are panel data for T = 2 time periods for

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Suppose that there are panel data for T = 2 time periods for a randomized controlled experiment, where the first observa

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Suppose that there are panel data for T = 2 time periods for a randomized controlled experiment, where the first observation (t = 1) is taken before the experiment and the second observation (t = 2) is for the posttreatment period. Suppose that the treatment is binary; that is, suppose that Xit = 1 if the i th individual is in the treatment group and t = 2, and Xit = 0 otherwise. Further suppose that the treatment effect can be modeled using the specification Yit = ai + b1Xit + uit , where ai are individual-specific effects [see Equation (13.11)] with a mean of zero and a variance of s2 a and uit is an error term, where uit is homoskedastic, cov(ui1, ui2) = 0, and cov (uit , ai ) = 0 for all i. Let bn differences 1 denote the differences estimator

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