In January 2009 Germany introduced incentive regulation for the electricity distribution sector based on results obtained from econometric and nonparametric benchmarking analysis. One main problem for the regulator in assigning the relative efficiency scores are unobserved firm-specific factors...

The stochastic frontier analysis (Aigner et al., 1977, Meeusen and van de Broeck, 1977) is widely used to estimate individual efficiency scores. The basic idea lies in the introduction of an additive error term consisting of a noise and an inefficiency term. Most often the assumption of a...

The stochastic frontier model with heterogeneous technical efficiency explained by exogenous variables is augmented with a sparse spatial autoregressive component for a cross-section data, and a spatial-temporal component for a panel data. An estimation procedure that takes advantage of the...