Binary and Ordinal Data Analysis in Economics: Modeling and Estimation

This chapter is concerned with the analysis of statistical models for binary and ordinal outcomes. Binary data arise when a particular response variable of interest yi can take only two values, i.e. yi ∈ {0, 1}, where the index i = 1, . . . , n refers to units in the sample such as individuals, families, firms, and so on. Such dichotomous outcomes are widespread in the social and natural sciences. For example, to understand socio-economic processes, economists often need to analyze individuals’ binary decisions such as whether to make a particular purchase, participate in the labor force, obtain a college degree, see a doctor, migrate to a different country, or vote in an election. By convention, yi = 1 typically indicates the occurrence of the event of interest, whereas the occurrence of its complement is denoted by yi = 0.