Flexible dependence modeling using convex combinations of different types of connectivity structures
Nicolas Debarsy () and
Regional Science and Urban Economics, 2018, vol. 69, issue C, 48-68
There is a great deal of literature regarding use of non-geographically based connectivity matrices or combinations of geographic and non-geographic structures in spatial econometrics models. We explore alternative approaches for constructing convex combinations of different types of dependence between observations. Pace and LeSage (2002) as well as Hazır et al. (2016) use convex combinations of different connectivity matrices to form a single weight matrix that can be used in conventional spatial regression estimation and inference. An example for the case of two weight matrices, W1,W2 reflecting different types of dependence between a cross-section of regions, firms, individuals etc., located in space would be: Wc=γ1W1+(1−γ1)W2,0≤γ1≤1. The matrix Wc reflects a convex combination of the two weight matrices, with the scalar parameter γ1 indicating the relative importance assigned to each type of dependence. We explore issues that arise in producing estimates and inferences from these more general cross-sectional regression relationships in a Bayesian framework. We propose two procedures to estimate such models and assess their finite sample properties through Monte Carlo experiments. We illustrate our methodology in an application to CEO salaries for a sample of nursing homes located in Texas. Two types of weights are considered, one reflecting spatial proximity of nursing homes and the other peer group proximity, which arise from the salary benchmarking literature.
Keywords: Spatial econometrics; Connectivity matrix; Salary benchmarking models; Markov Chain Monte Carlo estimation; Bayesian model probabilities; Convex combination (search for similar items in EconPapers)
JEL-codes: C11 C21 C51 M12 L84 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Flexible dependence modeling using convex combinations of different types of connectivity structures (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:69:y:2018:i:c:p:48-68
Access Statistics for this article
Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou
More articles in Regional Science and Urban Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().