Copula Bivariate Probit Models: With an Application to Medical Expenditures

30 Pages Posted: 29 Oct 2011

See all articles by Rainer Winkelmann

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 1, 2011

Abstract

The bivariate probit model is frequently used for estimating the eff ect of an endogenous binary regressor (the "treatment") on a binary health outcome variable. This paper discusses simple modifi cations that maintain the probit assumption for the marginal distributions while introducing non-normal dependence using copulas. In an application of the copula bivariate probit model to the effect of insurance status on the absence of ambulatory health care expenditure, a model based on the Frank copula outperforms the standard bivariate probit model.

Keywords: Bivariate probit, binary endogenous regressor, Frank copula, Clayton copula

JEL Classification: C35, I12

Suggested Citation

Winkelmann, Rainer, Copula Bivariate Probit Models: With an Application to Medical Expenditures (July 1, 2011). Available at SSRN: https://ssrn.com/abstract=1949781 or http://dx.doi.org/10.2139/ssrn.1949781

Rainer Winkelmann (Contact Author)

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