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Plants in Space

Author

Listed:
  • Ezra Oberfield
  • Esteban Rossi-Hansberg
  • Pierre-Daniel G. Sarte
  • Nicholas Trachter

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.

Suggested Citation

  • Ezra Oberfield & Esteban Rossi-Hansberg & Pierre-Daniel G. Sarte & Nicholas Trachter, 2020. "Plants in Space," Working Paper 20-05, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:88430
    DOI: 10.21144/wp20-05
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    Cited by:

    1. Pauly, Stefan & Stipanicic, Fernando, 2021. "The creation and diffusion of knowledge: Evidence from the Jet Age," CEPREMAP Working Papers (Docweb) 2112, CEPREMAP.
    2. Gianandrea Lanzara & Matteo Santacesaria, 2021. "Market areas in general equilibrium," Papers 2110.15849, arXiv.org.
    3. Acosta, Camilo & Lyngemark, Ditte Håkonsson, 2021. "The internal spatial organization of firms: Evidence from Denmark," Journal of Urban Economics, Elsevier, vol. 124(C).
    4. Chang-Tai Hsieh & Esteban Rossi-Hansberg, 2019. "The Industrial Revolution in Services," NBER Working Papers 25968, National Bureau of Economic Research, Inc.
    5. Yuhei Miyauchi & Kentaro Nakajima & Stephen J. Redding, 2021. "The Economics of Spatial Mobility: Theory and Evidence Using Smartphone Data," NBER Working Papers 28497, National Bureau of Economic Research, Inc.
    6. Cameron LAPOINT & SAKABE Shogo, 2021. "Place-Based Policies and the Geography of Corporate Investment," Discussion papers 21059, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    plants; economics; rents;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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