Testing truncation dependence: The Gumbel–Barnett copula

Abstract

In studies on lifetimes, occasionally, the population contains statistical units that are born before the data collection has started. Left-truncated are units that deceased before this start. For all other units, the age at the study start often is recorded and we aim at testing whether this second measurement is independent of the genuine measure of interest, the lifetime. Our basic model of dependence is the one-parameter Gumbel–Barnett copula. For simplicity, the marginal distribution of the lifetime is assumed to be Exponential and for the age-at-study-start, namely the distribution of birth dates, we assume a Uniform. Also for simplicity, and to fit our application, we assume that units that die later than our study period, are also truncated. As a result from point process theory, we can approximate the truncated sample by a Poisson process and thereby derive its likelihood. Identification, consistency and asymptotic distribution of the maximum-likelihood estimator are derived. Testing for positive truncation dependence must include the hypothetical independence which coincides with the boundary of the copula’s parameter space. By non-standard theory, the maximum likelihood estimator of the exponential and the copula parameter is distributed as a mixture of a two- and a one-dimensional normal distribution. For the proof, the third parameter, the unobservable sample size, is profiled out. An interesting result is, that it differs to view the data as truncated sample, or, as simple sample from the truncated population, but not by much. The application are 55 thousand double-truncated lifetimes of German businesses that closed down over the period 2014 to 2016. The likelihood has its maximum for the copula parameter at the parameter space boundary so that the p-value of test is 0.5. The life expectancy does not increase relative to the year of foundation. Using a Farlie–Gumbel–Morgenstern copula, which models positive and negative dependence, finds that life expectancy of German enterprises even decreases significantly over time. A simulation under the condition of the application suggests that the tests retain the nominal level and have good power.