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The Spatial Efficiency Multiplier and Common Correlated Effects in a Spatial Autoregressive Stochastic Frontier Model

Anthony J. Glass, Karligash Kenjegalieva (), Robin C. Sickles and Thomas Weyman-Jones
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Anthony J. Glass: Loughborough U
Robin C. Sickles: Rice U and Loughborough U
Thomas Weyman-Jones: Loughborough U

Working Papers from Rice University, Department of Economics

Abstract: We extend the emerging literature on spatial frontier methods in a number of respects. One contribution includes accounting for unobserved heterogeneity. This involves developing a random effects spatial autoregressive stochastic frontier model which we generalize to a common correlated effects specification to account for correlation between the regressors and the unit specific effects. Another contribution is the introduction of the concept of a spatial efficiency multiplier to show that the efficiency frontiers from the structural and reduced forms of a spatial frontier model differ. To demonstrate various features of the estimators we develop we carry out a Monte Carlo simulation analysis and provide an empirical application. The application is to a state level cost frontier for U.S. agriculture which is a popular case in the efficiency literature and is thus well-suited to highlighting the features of the estimators we propose.

JEL-codes: C23 C51 D24 Q10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-eff, nep-ore and nep-ure
Date: 2018
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Handle: RePEc:ecl:riceco:18-003