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Using Copulas to Model Switching Regimes with an Application to Child Labour

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  • MURRAY D. SMITH

Abstract

The copula approach to econometric modelling involves the specification of the separate components of the joint distribution of the random variables of interest: models built for each margin are bound together using a copula function. In this paper, the copula approach is used to construct models for switching regimes. The construct is illustrated by fitting a wage earnings model for child workers in the early 1900s, with regimes governed according to literacy. The results improve on earlier modelling efforts by Poirier and Tobias (2003), finding that a child worker may on average expect a reduction in earnings from being literate.

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  • Murray D. Smith, 2005. "Using Copulas to Model Switching Regimes with an Application to Child Labour," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 47-57, August.
    • Handle: RePEc:bla:ecorec:v:81:y:2005:i:s1:p:s47-s57
    DOI: 10.1111/j.1475-4932.2005.00246.x
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    Cited by:

    1. Simon Luechinger & Alois Stutzer & Rainer Winkelmann, 2008. "Self-Selection and Subjective Well-Being: Copula Models with an Application to Public and Private Sector Work," SOEPpapers on Multidisciplinary Panel Data Research 135, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Jörg Schwiebert, 2016. "Multinomial choice models based on Archimedean copulas," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 100(3), pages 333-354, July.
    3. Mike Vuolo, 2017. "Copula Models for Sociology: Measures of Dependence and Probabilities for Joint Distributions," Sociological Methods & Research, , vol. 46(3), pages 604-648, August.
    4. Gabriela Grotkowska & Leszek Wincenciak & Tomasz Gajderowicz, 2018. "Public–private wage differential in a post‐transition economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 26(3), pages 495-522, July.
    5. Bhat, Chandra R. & Eluru, Naveen, 2009. "A copula-based approach to accommodate residential self-selection effects in travel behavior modeling," Transportation Research Part B: Methodological, Elsevier, vol. 43(7), pages 749-765, August.
    6. Rainer Winkelmann, 2012. "Copula Bivariate Probit Models: With An Application To Medical Expenditures," Health Economics, John Wiley & Sons, Ltd., vol. 21(12), pages 1444-1455, December.
    7. Rainer Winkelmann, 2009. "Copula-based bivariate binary response models," SOI - Working Papers 0913, Socioeconomic Institute - University of Zurich.
    8. Hasebe, Takuya & Vijverberg, Wim P., 2012. "A Flexible Sample Selection Model: A GTL-Copula Approach," IZA Discussion Papers 7003, Institute of Labor Economics (IZA).
    9. Chandra Bhat & Ipek Sener, 2009. "A copula-based closed-form binary logit choice model for accommodating spatial correlation across observational units," Journal of Geographical Systems, Springer, vol. 11(3), pages 243-272, September.
    10. Chen, Heng & Fan, Yanqin & Wu, Jisong, 2014. "A flexible parametric approach for estimating switching regime models and treatment effect parameters," Journal of Econometrics, Elsevier, vol. 181(2), pages 77-91.
    11. Dalla Valle Luciana, 2016. "The Use of Official Statistics in Self-Selection Bias Modeling," Journal of Official Statistics, Sciendo, vol. 32(4), pages 887-905, December.

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