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A Bayesian Model of Sample Selection with a Discrete Outcome Variable

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  • Maksym, Obrizan

Abstract

Relatively few published studies apply Heckman’s (1979) sample selection model to the case of a discrete endogenous variable and those are limited to a single outcome equation. However, there are potentially many applications for this model in health, labor and financial economics. To fill in this theoretical gap, I extend the Bayesian multivariate probit setup of Chib and Greenberg (1998) into a model of non-ignorable selection that can handle multiple selection and discrete-continuous outcome equations. The first extension of the multivariate probit model in Chib and Greenberg (1998) allows some of the outcomes to be missing. In addition, I use Cholesky factorization of the variance matrix to avoid the Metropolis-Hastings algorithm in the Gibbs sampler. Finally, using artificial data I show that the model is capable of retrieving the parameters used in the data-generating process and also that the resulting Markov Chain passes all standard convergence tests.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28577.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:28577

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Keywords: Markov Chain Monte Carlo; sample selection; multivariate probit;

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  3. Leung, S.F. & Yu, S., 1992. "On the Choice Between Sample Selection and Two-Part Models," RCER Working Papers 337, University of Rochester - Center for Economic Research (RCER).
  4. McCulloch, Robert E. & Polson, Nicholas G. & Rossi, Peter E., 2000. "A Bayesian analysis of the multinomial probit model with fully identified parameters," Journal of Econometrics, Elsevier, vol. 99(1), pages 173-193, November.
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  23. Murat K. Munkin & Partha Deb & Pravin K. Trivedi, 2006. "Bayesian analysis of the two-part model with endogeneity: application to health care expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1081-1099.
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