A Spatial Stochastic Frontier Model with Endogenous Frontier and Environmental Variables

Authors

Levent Kutlu, The University of Texas Rio Grande ValleyFollow
Kien C. Tran, University of Lethbridge
Mike G. Tsionas, Lancaster University

Document Type

Article

Publication Date

10-2020

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 the 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.

Comments

© 2020 Elsevier B.V. Original published version available at https://doi.org/10.1016/j.ejor.2020.03.020

Recommended Citation

Kutlu, Levent, Kien C. Tran, and Mike G. Tsionas. “A Spatial Stochastic Frontier Model with Endogenous Frontier and Environmental Variables.” European Journal of Operational Research 286, no. 1 (October 2020): 389–99. https://doi.org/10.1016/j.ejor.2020.03.020.

First Page

389

Last Page

399

Publication Title

European Journal of Operational Research

DOI

10.1016/j.ejor.2020.03.020