Suppose 15 states pass a law that limits trial lawyers' compensation.No such law passed in the other 35 states.Suppose that the value of all malpractice suits goes from an average of $2.4 billion to $2.8 billion in those 15 states and goes from $2.3 billion to $2.6 billion in the 35 states,over the time in which the laws were passed.What is the difference-in-difference estimator of the effect of these laws?

Question

Quizplus · Accepted Answer

To calculate the difference-in-difference estimator, we need to find the difference in the change of malpractice suits between the two groups (15 states with limit law and 35 states without limit law) before and after the law was passed.

- In the 15 states with the limit law, the change in value of malpractice suits went from $2.4 billion to $2.8 billion, which is an increase of $0.4 billion.
- In the 35 states without the limit law, the change in value of malpractice suits went from $2.3 billion to $2.6 billion, which is an increase of $0.3 billion.

Therefore, the difference in the change between the two groups is $0.4 billion - $0.3 billion = $0.1 billion. This means that the law had a positive effect of increasing malpractice suits by $0.1 billion in the 15 states that passed it.

Suppose 15 States Pass a Law That Limits Trial Lawyers