A new stochastic frontier model with cross-sectional effects in both noise and inefficiency terms

摘要

This paper develops a new stochastic frontier model that allows for cross-sectional (spatial) correlation in both the noise and inefficiency terms, which are likely to be of a different nature. The main econometric novelty of the proposed model is that it can be estimated in a straightforward manner by maximum likelihood and non-linear least squares. The proposed model is useful when there are omitted but spatially correlated variables, the firms benefit from best practices implemented by other firms, or common factors prevent the firms to improve their performance. An application to the Norwegian electricity distribution sector is also provided. (C) 2019 Elsevier B.V. All rights reserved.