Journal
JOURNAL OF AGRICULTURAL ECONOMICS
Volume 58, Issue 1, Pages 37-60Publisher
WILEY
DOI: 10.1111/j.1477-9552.2007.00077.x
Keywords
Bayesian estimation and model comparison; neighbourhood effects; smallholder market access; spatial probit model
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We present a procedure for estimating two quantities defining the spatial externality in discrete-choice commonly referred to as 'the neighbourhood effect'. One quantity, the propensity for neighbours to make the same decision, reflects traditional preoccupations; the other quantity, the magnitude of the neighbourhood itself, is novel. Because both quantities have fundamental bearing on the magnitude of the spatial externality, it is desirable to have a robust algorithm for their estimation. Using recent advances in Bayesian estimation and model comparison, we devise such an algorithm and illustrate its application to a sample of northern-Filipino smallholders. We determine that a significant, positive, neighbourhood effect exists; that, among the 12 geographical units comprising the sample, the neighbourhood spans a three-unit radius; and that policy prescriptions are significantly altered when calculations account for the spatial externality.
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