Estimation of Stochastic Frontier Panel Data Models with Spatial Inefficiency

32 Pages Posted: 31 May 2019

See all articles by Federico Belotti

Federico Belotti

University of Rome Tor Vergata - Department of Economics and Finance; University of Rome, Tor Vergata - Centre for Economics and International Studies (CEIS)

Giuseppe Ilardi

Bank of Italy

Andrea Piano Mortari

CEIS Tor Vergata

Date Written: May 30, 2019

Abstract

This paper proposes a stochastic frontier panel data model in which unit-specific inefficiencies are spatially correlated. In particular, this model has simultaneously three important features:

i) the total inefficiency of a productive unit depends on its own inefficiency and on the inefficiency of its neighbors;

ii) the spatially correlated and time varying inefficiency is disentangled from time invariant unobserved heterogeneity in a panel data model à la Greene (2005);

iii) systematic differences in inefficiency can be explained using exogenous determinants.

We propose to estimate both the "true" fixed- and random-effects variants of the model using a feasible simulated composite maximum likelihood approach. The finite sample behavior of the proposed estimators are investigated through a set of Monte Carlo experiments. Our simulation results suggest that the estimation approach is consistent, showing good finite sample properties especially in small samples.

Keywords: Stochastic frontiers model; Spatial inefficiency; Panel data, Fixed-effects model

JEL Classification: C13, C23, C15

Suggested Citation

Belotti, Federico and Ilardi, Giuseppe and Piano Mortari, Andrea, Estimation of Stochastic Frontier Panel Data Models with Spatial Inefficiency (May 30, 2019). CEIS Working Paper No. 459. Available at SSRN: https://ssrn.com/abstract=3396404 or http://dx.doi.org/10.2139/ssrn.3396404

Federico Belotti (Contact Author)

University of Rome Tor Vergata - Department of Economics and Finance

Via Columbia 2
Rome, RM 00133
Italy

University of Rome, Tor Vergata - Centre for Economics and International Studies (CEIS) ( email )

Via Columbia, 2
Rome, RM 00133
Italy

Giuseppe Ilardi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Piano Mortari

CEIS Tor Vergata ( email )

via Columbia, 2
Rome, rome 00133
Italy

HOME PAGE: http://www.ceistorvergata.it/area.asp?a=539&oc=817&d=1128

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