A Generalized Heckman Model With Varying Sample Selection Bias and Dispersion Parameters

TL;DR

This paper introduces a generalized Heckman model where sample selection bias and dispersion parameters depend on covariates, improving robustness and interpretability over traditional models, especially in medical expenditure data analysis.

Contribution

It extends the Heckman model by allowing key parameters to vary with covariates, addressing non-robustness issues and enhancing understanding of factors influencing sample selection bias.

Findings

The generalized model performs well in simulations, matching theoretical properties.

Application to medical expenditure data confirms the normality assumption is appropriate.

Identifies relevant covariates explaining sample selection bias.

Abstract

Many proposals have emerged as alternatives to the Heckman selection model, mainly to address the non-robustness of its normal assumption. The 2001 Medical Expenditure Panel Survey data is often used to illustrate this non-robustness of the Heckman model. In this paper, we propose a generalization of the Heckman sample selection model by allowing the sample selection bias and dispersion parameters to depend on covariates. We show that the non-robustness of the Heckman model may be due to the assumption of the constant sample selection bias parameter rather than the normality assumption. Our proposed methodology allows us to understand which covariates are important to explain the sample selection bias phenomenon rather than to only form conclusions about its presence. We explore the inferential aspects of the maximum likelihood estimators (MLEs) for our proposed generalized Heckman model. More specifically, we show that this model satisfies some regularity conditions such that it ensures consistency and asymptotic normality of the MLEs. Proper score residuals for sample selection models are provided, and model adequacy is addressed. Simulated results are presented to check the finite-sample behavior of the estimators and to verify the consequences of not considering varying sample selection bias and dispersion parameters. We show that the normal assumption for analyzing medical expenditure data is suitable and that the conclusions drawn using our approach are coherent with findings from prior literature. Moreover, we identify which covariates are relevant to explain the presence of sample selection bias in this important dataset.