Probit Models with Dummy Endogenous Regressors

University of Southern Denmark Business and Economics Discussion Paper No. 4/2006

iHEA 2007 6th World Congress: Explorations in Health Economics Paper

30 Pages Posted: 16 Jun 2007 Last revised: 15 May 2008

See all articles by Jacob Nielsen Arendt

Jacob Nielsen Arendt

Danish Institute of Governmental Research (KORA)

Holm Anders Larsen

University of Copenhagen

Date Written: February 2006

Abstract

This study considers heckit-type approximations useful for a number of different trivariate probit models. They are simple to use and have no convergence problems like full maximum likelihood. Simulations show that a heckit and a least squares approximation perform as well as the trivariate probit estimator in small samples when the degree of endogeneity is not too severe. A simple double-heckit and a heteroskedasticity corrected heckit approximation seem particularly robust and promising for testing exogeneity. The methods are used to estimate the impact of physician advice on physical activity, where the heckit approximations work as well as full maximum likelihood.

Keywords: Multivariate Probit, Two-step estimation, Endogeneity, Selection, Medical advice

JEL Classification: C25, C35, I12, I18

Suggested Citation

Arendt, Jacob Nielsen and Larsen, Holm Anders, Probit Models with Dummy Endogenous Regressors (February 2006). University of Southern Denmark Business and Economics Discussion Paper No. 4/2006, iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=994189 or http://dx.doi.org/10.2139/ssrn.994189

Jacob Nielsen Arendt

Danish Institute of Governmental Research (KORA) ( email )

Dampfaergevej 27-29
Copenhagen, 2100
Denmark

Holm Anders Larsen (Contact Author)

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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