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Testing exogeneity in the bivariate probit model: Monte Carlo evidence and an application to health economics


  • D. Fabbri
  • C. Monfardini
  • R. Radice


Many economic applications involve the modeling of a binary variable as simultaneously determined with one of its dycotomous regressors. In this paper we deal with a prominent health economics case study, that of cesarean section delivery utilization across public and private hospitals. Estimating the probability of cesarean section in a univariate framework neglecting the potential endogeneity of the hospital type dummy might lead to invalid inference. Since little is known about the exact sampling properties of alternative statistics for testing exogeneity of a dycotomous regressor in probit models, we conduct an extensive Monte Carlo experiment. Equipped with the simulation results we apply a comprehensive battery of tests to an Italian sample of women and find clear evidence against exogeneity of the hospital type dummy. We speculate on the economic implications of these results and discuss the misleading interpretation arising from the adoption of either univariate probit model or seemingly unrelated bivariate probit model.

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  • D. Fabbri & C. Monfardini & R. Radice, 2004. "Testing exogeneity in the bivariate probit model: Monte Carlo evidence and an application to health economics," Working Papers 514, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:514

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    Cited by:

    1. Udo Schneider & Volker Ulrich, 2008. "The physician-patient relationship revisited: the patient’s view," International Journal of Health Economics and Management, Springer, vol. 8(4), pages 279-300, December.
    2. William Greene, 2007. "Discrete Choice Modeling," Working Papers 07-6, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Joan Costa Font & Joan Gil Trasfi, 2005. "Obesity and the Incidence of Chronic Diseases: a Seemingly Unrelated Probit Approach," Working Papers in Economics 137, Universitat de Barcelona. Espai de Recerca en Economia.
    4. Claire Dujardin & Florence Goffette-Nagot, 2005. "Neighborhood effects, public housing and unemployment in France," Post-Print halshs-00180046, HAL.
    5. repec:hal:journl:halshs-00654181 is not listed on IDEAS
    6. Costa-Font, Joan & Gil, Joan, 2005. "Obesity and the incidence of chronic diseases in Spain: A seemingly unrelated probit approach," Economics & Human Biology, Elsevier, vol. 3(2), pages 188-214, July.
    7. Savignac, F., 2007. "The impact of financial constraints on innovation: What can be learned from a direct measure?," Working papers 169, Banque de France.
    8. Julide Yildirim & Nebile Korucu & Semsettin Karasu, 2010. "Further Education Or Re-Enlistment Decision In Turkish Armed Forces: A Seemingly Unrelated Probit Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(1), pages 89-103.
    9. Guillaume Blache, 2011. "Active labour market policies in Denmark: A comparative analysis of post-program effects," Documents de travail du Centre d'Economie de la Sorbonne 11071, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    10. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
    11. Georgios P. Kouretas & Mark E. Wohar, 2012. "The dynamics of inflation: a study of a large number of countries," Applied Economics, Taylor & Francis Journals, vol. 44(16), pages 2001-2026, June.
    12. Guillaume Blache, 2011. "Active Labour Market Policies in Denmark : A Comparative Analysis of Post-Program Effects," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00654181, HAL.
    13. Patricia Triunfo & Máximo Rossi, 2009. "The effect of physicians’ remuneration system on the Caesarean section rate: the Uruguayan case," International Journal of Health Economics and Management, Springer, vol. 9(4), pages 333-345, December.
    14. Jonathan Beck, 2004. "Fixed, Focal, Fair? Book Prices Under Optional Resale Price Maintenance," CIG Working Papers SP II 2004-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    15. Arrieta, Alejandro, 2011. "Health reform and cesarean sections in the private sector: The experience of Peru," Health Policy, Elsevier, vol. 99(2), pages 124-130, February.
    16. Udo Schneider & Volker Ulrich, 2007. "Health Relevant Behavior and its Impact on the Physician-Patient Relationship," Working Papers 023, Bavarian Graduate Program in Economics (BGPE).
    17. Dasgupta, Susmita & Meisner, Craig & Huq, Mainul, 2005. "Health effects and pesticide perception as determinants of pesticide use : evidence from Bangladesh," Policy Research Working Paper Series 3776, The World Bank.
    18. Sergi Jimenez & Natalia Jorgensen & José María Labeaga, 2008. "Immigration and the Demand for Health in Spain," Working Papers 2008-38, FEDEA.
    19. Barone, Adriana & O'Higgins, Niall, 2010. "Fat and out in Salerno and its province: Adolescent obesity and early school leaving in Southern Italy," Economics & Human Biology, Elsevier, vol. 8(1), pages 44-57, March.
    20. Susmita Dasgupta & Craig Meisner & Mainul Huq, 2007. "A Pinch or a Pint? Evidence of Pesticide Overuse in Bangladesh," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(1), pages 91-114, February.

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