Plants in Space

69 Pages Posted: 3 Jun 2020

See all articles by Ezra Oberfield

Ezra Oberfield

Princeton University

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 3 versions of this paper

Date Written: May 2020

Abstract

We study the number, size, and location of a firm's plants. The firm's decision balances the benefit of delivering goods and services to customers using multiple plants with the cost of setting up and managing these plants, and the potential for cannibalization that arises as their number increases. Modeling the decisions of heterogeneous firms in an economy with a vast number of widely distinct locations is complex because it involves a large combinatorial problem. Using insights from discrete geometry, we study a tractable limit case of this problem in which these forces operate at a local level. Our analysis delivers clear predictions on sorting across space. Productive firms place more plants in dense locations that exhibit high rents compared with less productive firms, and place fewer plants in markets with low density and low rents. Controlling for the number of plants, productive firms also operate larger plants than those operated by less productive firms in locations where both are present. We present evidence consistent with these and several other predictions using U.S. establishment-level panel data.

JEL Classification: D24, L25, R3

Suggested Citation

Oberfield, Ezra and Rossi-Hansberg, Esteban Alejandro and Sarte, Pierre-Daniel and Trachter, Nicholas, Plants in Space (May 2020). CEPR Discussion Paper No. DP14823, Available at SSRN: https://ssrn.com/abstract=3615586

Ezra Oberfield (Contact Author)

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

Esteban Alejandro Rossi-Hansberg

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Nicholas Trachter

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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