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Copula-based bivariate binary response models

Author

Listed:
  • 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.

Suggested Citation

  • Rainer Winkelmann, 2009. "Copula-based bivariate binary response models," SOI - Working Papers 0913, Socioeconomic Institute - University of Zurich.
  • Handle: RePEc:soz:wpaper:0913
    as

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    File URL: http://www.econ.uzh.ch/static/wp_soi/wp0913.pdf
    File Function: first version, 2009
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Michele Sennhauser, 2009. "Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments," SOI - Working Papers 1014, Socioeconomic Institute - University of Zurich.
    2. Polk, Andreas & Schmutzler, Armin & Müller, Adrian, 2014. "Lobbying and the power of multinational firms," European Journal of Political Economy, Elsevier, vol. 36(C), pages 209-227.

    More about this item

    Keywords

    Bivariate probit; binary endogenous regressor; Frank copula; Clayton copula;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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