Working Paper: NBER ID: w27303
Authors: Ezra Oberfield; Esteban Rossi-Hansberg; Pierre-Daniel 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.
Keywords: Plant Location; Firm Productivity; Spatial Economics; Sorting Patterns
JEL Codes: D24; L25; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm Productivity (D21) | Number of Plants (Y10) |
| Firm Productivity (D21) | Size of Plants (L25) |
| Local Market Characteristics (R20) | Firm Productivity (D21) |
| Local Market Characteristics (R33) | Number of Plants (Y10) |
| Local Market Characteristics (R33) | Size of Plants (L25) |
| Transportation Costs (L91) | Firm Behavior (D21) |
| Span of Control Improvements (M54) | Firm Behavior (D21) |