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Self-Selection and Subjective Well-Being: Copula Models with an Application to Public and Private Sector Work

By Simon Luechinger, Alois Stutzer and Rainer Winkelmann

Abstract

We discuss a new approach to specifying and estimating ordered probit models with endogenous switching, or with binary endogenous regressor, based on copula functions. These models provide a framework of analysis for self-selection in economic well-being equations, where assigment of regressors may be choice based, resulting from well-being maximization, rather than random. In an application to public and private sector job satisfaction, and using data on male workers from the German Socio-Economic Panel, we find that a model based on Frank's copula is preferred over two alternative models with independence and normal copula, respectively. The results suggest that public sector workers are negatively selected.Ordered probit, switching regression, Frank copula, job satisfaction, German Socio-Economic Panel

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