Bivariate Probit and Logit Models Example Ani Katchova

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Bivariate Probit and Logit Models Example

 We study the factors influencing the joint outcome of being in an excellent health status (y1) and visiting the doctor (y2).  Data are from Rand Health Insurance experiment.  The mean (proportion) for excellent health status (y1) is 0.54 and the mean (proportion) for visiting the doctor (y2) is 0.67. The correlation is -0.01, so the two outcomes are practically uncorrelated (higher correlation is needed to apply bivariate probit).

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Bivariate outcome model coefficients Probit coefficients for y1

Age Log income Number of chronic diseases Constant Rho

Probit coefficients for y2

Being in excellent health -0.01* 0.13* -0.03* -0.23

Visiting the doctor 0.002 0.12* 0.03* -1.03*

Bivariate Probit coefficients for y1 Being in excellent health -0.01* 0.13* -0.03* -0.23 0.02

Bivariate Probit coefficients for y2 Visiting the doctor 0.002 0.12* 0.03* -1.03*

 Coefficient interpretation: Younger individuals, individuals with higher incomes, and those with lower number of chronic disease are more likely to be in an excellent health status. Individuals with higher incomes and those with higher number of chronic diseases are more likely visit the doctor.  The correlation coefficient between the bivariate outcomes is 0.02 and not significant. Therefore, we can proceed by estimating separate probit models instead of a bivariate probit model. The decisions are not interrelated and can be estimated independently.  The results from the separate probit models are almost identical to those from the bivariate probit model, so in this case there is no need to perform the bivariate probit model. 3

Marginal effects for the joint probabilities Age Log income Number of chronic diseases

P(y1=0, y2=0) 0.001* -0.037* -0.012*

P(y1=0, y2=1) 0.005* -0.015* 0.015*

P(y1=1, y2=0) -0.003* -0.006 -0.011*

P(y1=1, y2=1) -0.004* 0.059* -0.003*

 The marginal effects are interpreted similarly to those of binary probit and logit models, but the effect is on the joint probability of the two outcomes.  The marginal effects sum up to zero across the four joint probabilities.  When age increases by 1 year, the probability P(y1=0, y2=1) of a person not being in an excellent health and visiting the doctor increases by 0.5%. Notice that the other marginal effects are negative.

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Bivariate Probit and Logit Models Example.pdf

Page 2 of 4. 2. Bivariate Probit and Logit Models Example. We study the factors influencing the joint outcome of being in an excellent health status (y1). and visiting the doctor (y2). Data are from Rand Health Insurance experiment. The mean (proportion) for excellent health status (y1) is 0.54 and the mean (proportion) ...

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