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Copula-based bivariate binary response models

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Author Info
Rainer Winkelmann () (Socioeconomic Institute, University of Zurich)
Abstract

The bivariate probit model is frequently used for estimating the effect of an endogenous binary regressor on a binary outcome variable. This paper discusses simple modifications that maintain the probit assumption for the marginal distributions while introducing non-normal dependence among the two variables using copulas. Simulation results and evidence from two applications, one on the effect of insurance status on ambulatory expenditure and one on the effect of completing high school on subsequent unemployment, show that these modified bivariate probit models work well in practice, and that they provide a viable and simple alternative to the standard bivariate probit approach.

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File URL: http://www.soi.uzh.ch/research/wp/2009/wp0913.pdf
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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0913.

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Length: 26 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:soz:wpaper:0913

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Related research
Keywords: Bivariate probit; binary endogenous regressor; Frank copula; Clayton copula;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Murray D. Smith, 2005. "Using Copulas to Model Switching Regimes with an Application to Child Labour," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages S47-S57, 08. [Downloadable!] (restricted)
  2. Evans, William N & Schwab, Robert M, 1995. "Finishing High School and Starting College: Do Catholic Schools Make a Difference?," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 941-74, November. [Downloadable!] (restricted)
  3. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March. [Downloadable!] (restricted)
  4. Murray D. Smith, 2003. "Modelling sample selection using Archimedean copulas," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 99-123, 06. [Downloadable!] (restricted)
  5. Wilde, Joachim, 2000. "Identification of multiple equation probit models with endogenous dummy regressors," Economics Letters, Elsevier, vol. 69(3), pages 309-312, December. [Downloadable!] (restricted)
  6. Koenker, Roger & Yoon, Jungmo, 2009. "Parametric links for binary choice models: A Fisherian-Bayesian colloquy," Journal of Econometrics, Elsevier, vol. 152(2), pages 120-130, October. [Downloadable!] (restricted)
  7. Wendy A. Stock & T. Aldrich Finegan & John J. Siegfried, 2009. "Completing an Economics PhD in Five Years," American Economic Review, American Economic Association, vol. 99(2), pages 624-29, May. [Downloadable!]
  8. Ribar, David C, 1994. "Teenage Fertility and High School Completion," The Review of Economics and Statistics, MIT Press, vol. 76(3), pages 413-24, August. [Downloadable!] (restricted)
    Other versions:
  9. Mingliang Li, 2006. "High school completion and future youth unemployment: new evidence from High School and Beyond," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 23-53. [Downloadable!]
  10. Zimmer, David M. & Trivedi, Pravin K., 2006. "Using Trivariate Copulas to Model Sample Selection and Treatment Effects: Application to Family Health Care Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 63-76, January. [Downloadable!] (restricted)
  11. Artem Prokhorov & Peter Schmidt, 2009. "Likelihood Based Estimation in a Panel Setting: Robustness, Redundancy and Validity of Copulas," Working Papers 09002, Concordia University, Department of Economics. [Downloadable!]
  12. Daniele Fabbri & Chiara Monfardini, 2008. "Style of practice and assortative mating: a recursive probit analysis of Caesarean section scheduling in Italy," Applied Economics, Taylor and Francis Journals, vol. 40(11), pages 1411-1423. [Downloadable!] (restricted)
    Other versions:
  13. 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. [Downloadable!]
  14. Munkin, Murat K. & Trivedi, Pravin K., 2008. "Bayesian analysis of the ordered probit model with endogenous selection," Journal of Econometrics, Elsevier, vol. 143(2), pages 334-348, April. [Downloadable!] (restricted)
  15. Murphy, Anthony, 2007. "Score tests of normality in bivariate probit models," Economics Letters, Elsevier, vol. 95(3), pages 374-379, June. [Downloadable!] (restricted)
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  16. van Ophem, Hans, 1999. "A General Method To Estimate Correlated Discrete Random Variables," Econometric Theory, Cambridge University Press, vol. 15(02), pages 228-237, April. [Downloadable!]
  17. van Ophem, Hans, 2000. "Modeling Selectivity in Count-Data Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 503-11, October.
  18. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January. [Downloadable!] (restricted)
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