Spatial Stochastic Frontier Model with Endogenous Spillovers

22 Pages Posted: 8 Jul 2020

See all articles by Levent Kutlu

Levent Kutlu

University of Texas Rio Grande Valley

Date Written: June 7, 2020

Abstract

We propose a spatial autoregressive stochastic frontier model, which allows for endogenous spillovers (i.e., the spatial weighting matrix is not independent of the two-sided error term). The parameters of the model are estimated via the maximum likelihood estimation method. Monte Carlo simulations illustrate that our model performs well in finite samples. As an example, we employed our methodology to the US banks and found evidence for endogenous spillovers. The empirical example suggested potential biases in the parameter estimates when endogeneity of spillovers is ignored.

Keywords: Productivity and competitiveness, US banks, Endogeneity, Spatial autoregressive model, Stochastic frontier

JEL Classification: C13, C23, C36, D24

Suggested Citation

Kutlu, Levent, Spatial Stochastic Frontier Model with Endogenous Spillovers (June 7, 2020). Available at SSRN: https://ssrn.com/abstract=3626688 or http://dx.doi.org/10.2139/ssrn.3626688

Levent Kutlu (Contact Author)

University of Texas Rio Grande Valley ( email )

1201 West University Dr
Edinburg, TX TX 78539
United States

HOME PAGE: http://https://faculty.utrgv.edu/levent.kutlu/

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