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Joan Llull
In this chapter we analyze some models for discrete outcomes, models for which
of m mutually exclusive categories is selected.
This section: binary outcomes.
Logit: F (x β) = Λ(x β) = . 0
0 0 ex β
1+ex0 β
Probit: F (x β) = Φ(x β) =
0 φ(z)dz .
0 x0 β
R
−∞
where p = F (x β).0
y ∗ = x0 β + u u ∼ F (·)
We only observe: (
1 if y ∗
> 0,
y=
0 if y ∗
≤ 0.
This model delivers the Logit if F (·) = Λ(·) and the Probit if F (·) = Φ(·).
The threshold is normalized to 0 because it is not separately identied from the constant.
Similarly, all parameters are identied up to scale since Pr[u > −x β] = Pr[ua > −x βa] ⇒ We
0 0
V = z α + x β for j = 0, 1 ⇒ V − V = (z − z ) α + x (β − β ).
j
0
j
0
j 1 0 1 0
0 0
1 0
f (ε ) = e
j exp{e }, j = 0, 1 (i.e. Type I EV) ⇒ ε − ε ∼ Λ(·)
−εj −εj
0 1
When the number of endogenous regressors is small enough we proceed with a Mul-
tivariate Probit model.
Endogeneity is provided by ρ 6= 0.
As in Exercise 1, we can factorize the conditional likelihood: f (y |z, y )f (y |z).
1 2 2
N
(y2i − z 0i γ)2
X
LN (α, β, ρ, σ, γ) ∝ y1i ln Φ (a) + (1 − y1i ) ln [1 − Φ (a)] − ln σ − ,
i=1
2σ 2
where a = ρ
x0i α+βy2i + σ
√ .(y2i −z 0i γ)
1−ρ2
where:
P00 ≡ Pr[y1 = 0, y2 = 0|z] = Φ2 (−x0 α, −z 0 γ; ρ).