Integrated spatial dependence into Stochastic Frontier Analysis
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An approach to incorporate spatial dependence into stochastic frontier analysis is
developed and applied to a sample of 215 dairy farms in England and Wales. A number
of alternative specifications for the spatial weight matrix are used to analyse the
effect of these on the estimation of spatial dependence. Estimation is conducted using
a Bayesian approach and results indicate that spatial dependence is present when
explaining technical inefficiency.