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COPULA BIVARIATE PROBIT MODELS: WITH AN APPLICATION TO MEDICAL EXPENDITURES

Authors


University of Zurich, Department of Economics, Zurichbergstr. 14, CH-8032 Zurich, Switzerland. E-mail: rainer.winkelmann@econ.uzh.ch

ABSTRACT

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. Copyright © 2011 John Wiley & Sons, Ltd.

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