Dynamic Inefficiency and Spatial Spillovers in Dutch Dairy Farming

This article examines the presence of spatial spillovers in farms’ dynamic technical inefficiency scores using Data Envelopment Analysis and a second‐stage spatial truncated bootstrap regression model. Dynamic inefficiency is measured in terms of variable input contraction and gross investment expansion, while the second‐stage model allows an individual’s dynamic inefficiency to be influenced by both own and neighbours’ characteristics. The empirical application focuses on the panel data of specialised Dutch dairy farms observed over the period 2009–2016 and for which exact geographical coordinates of latitude and longitude are available. The results confirm the existence of spatial spillovers in farmers’ dynamic technical inefficiency levels. Although changes in neighbours’ subsidies do not significantly influence an individual’s inefficiency, an increase in neighbours’ age reduces an individual’s performance, while an increase in neighbours’ levels of intensification improves an individual’s dynamic efficiency.