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A spatial stochastic frontier model with endogenous frontier and environmental variables

Levent Kutlu, Kien Tran () and Mike Tsionas

European Journal of Operational Research, 2020, vol. 286, issue 1, 389-399

Abstract: We propose a spatial autoregressive stochastic frontier model, which allows for the endogeneity in both the frontier and environmental variables (i.e., endogeneity due to correlation of inefficiency term and two-sided error term). The model parameters are estimated using a single-stage control function approach. Monte Carlo simulations show that our proposed model and approach perform well in finite samples. We employed our methodology to the Chinese chemicals firm data and found evidence for both spatial effects and endogeneity.

Keywords: Productivity and competitiveness; Chinese chemical firms; Endogeneity; Spatial autoregressive spillover; Stochastic frontier (search for similar items in EconPapers)
JEL-codes: C13 C23 C36 D24 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ejor.2020.03.020

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Handle: RePEc:eee:ejores:v:286:y:2020:i:1:p:389-399