CEBA Talk: Binary Endogenous Treatment in Stochastic Frontier Models with an Application to Soil Conservation in El Salvador

Speaker: Samuele Centorrino (Assistant Professor of Economics, Stony Brook University, NY, USA) Abstract: Improving the efficiency of the agricultural sector is part of one of the Sustainable Development Goals set by the United Nations. To this end, many international organizations have funded training programs that aim to reach small farmers in developing countries. Stochastic production frontier analysis can be a useful tool when evaluating the effectiveness of these programs. However, accounting for endogenous selection into treatment, often intrinsic to these interventions, has received some attention only recently. In this work, we extend the classical maximum likelihood estimation of stochastic production frontier models, when both the production frontier and inefficiency depend on a potentially endogenous binary treatment. We use instrumental variables to define an assignment mechanism for the treatment, and we explicitly model the density of the first and second-stage composite error terms.