Spatial Dependence in Efficiency Parametric Models: A Generalization and Simulation Studies

This paper aims to shed light on the debate concerning economic efficiency analysis, when consideration of the geographical location of a production unit is crucial for obtaining a better estimate of the firm-specific efficiency. In the strand of methods taking into account for spatial dependence into the efficiency term, this paper provides a more general formulation of the Spatial Stochastic Frontier Analysis model, which enables the estimation of both production and cost frontiers by referring to the same model. Moreover, for the first time, its estimation performance and sensitivity to different specifications of the spatial weights matrix are studied through simulations.