Does neighbour’s grass matter? Exploring spatial dependent heterogeneity in technical efficiency of Italian hospitals

With respect to the other dimensions of hospital behaviour, studying the presence of interaction effects on efficiency involves the issue of which approach is most appropriate to incorporate the spatial dependence in the empirical efficiency model. Using a large sample of Italian hospitals, this paper explores the presence of spatial dependence in technical efficiency. To this purpose, we employ a Spatial Stochastic Frontier Analysis (SSFA) that allows us to robustly estimate the efficiency of each hospital while considering the presence of spatial dependence. Furthermore, we employ both standard spatial contiguity matrix and spatial matrixes exploring the idea of institutional contiguity. Overall, the results suggest an insignificant role for spatial dependence in the efficiency of Italian hospitals, regardless of the specific form of spatial dependence implicit in the weights matrix.