Facilitating Heterogeneous Effect Estimation via Statistically Efficient Categorical Modifiers

Categorical covariates such as race, sex, or group are ubiquitous in regression analysis. While main-only (or ANCOVA) linear models are predominant, linear models that include categorical-continuous or categorical-categorical interactions are increasingly important and allow heterogeneous, group-specific effects. However, with standard approaches, the addition of categorical interactions fundamentally alters the estimates and interpretations of the main effects, often inflates their standard errors, and introduces significant concerns about group (e.g., racial) biases. We advocate an alternative parameterization and estimation scheme using abundance-based constraints (ABCs). ABCs induce a model parameterization that is both interpretable and equitable. Crucially, we show that with ABCs, the addition of categorical interactions (a) leaves main effect estimates unchanged and (b) enhances their statistical power, under reasonable conditions. Thus, analysts can, and arguably should include categorical interactions in linear models to discover potential heterogeneous effects-without compromising estimation, inference, and interpretability for the main effects. Using simulated data, we verify these invariance properties for estimation and inference and showcase the capabilities of ABCs to increase statistical power. We apply these tools to study demographic heterogeneities among the effects of social and environmental factors on STEM educational outcomes for children in North Carolina. An R package lmabc is available. Supplementary materials for this article are available online, including a standardized description of the materials available for reproducing the work.