Copula Bivariate Probit Models: With an Application to Medical Expenditures
30 Pages Posted: 29 Oct 2011
Date Written: July 1, 2011
The bivariate probit model is frequently used for estimating the effect of an endogenous binary regressor (the "treatment") on a binary health outcome variable. This paper discusses simple modifications 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
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