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Probit Models with Binary Endogenous Regressors

Author

Listed:
  • Jacob Nielsen Arendt

    (Department of Business and Economics, University of Southern Denmark)

  • Anders Holm

    (Department of Sociology, University of Copenhagen)

Abstract

Sample selection and endogeneity are frequent causes of biases in non-experimental empirical studies. In binary models a standard solution involves complex multivariate models. A simple approximation has been shown to work well in bivariate models. This paper extends the approximation to a trivariate model. Simulations show that the approximation outperforms full maximum likelihood while a least squares approximation may be severely biased. The methods are used to estimate the influence of trust in the parliament and politicians on voting- propensity. No previous studies have allowed for endogeneity of trust on voting and it is shown to severely affect the results.

Suggested Citation

  • Jacob Nielsen Arendt & Anders Holm, 2006. "Probit Models with Binary Endogenous Regressors," CAM Working Papers 2006-06, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    • Handle: RePEc:kud:kuieca:2006_06
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    Keywords

    endogeneity; multivariate probit; approximation; Monte Carlo simulation;
    All these keywords.

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