COPULA BIVARIATE PROBIT MODELS: WITH AN APPLICATION TO MEDICAL EXPENDITURES

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 (c) 2011 John Wiley & Sons, Ltd.