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Plants in Space

Ezra Oberfield (), Esteban Rossi-Hansberg (), Pierre Daniel Sarte () and Nicholas Trachter

No 20-05, Working Paper from Federal Reserve Bank of Richmond

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: plants; economics; rents (search for similar items in EconPapers)
Pages: 66
Date: 2020-05-26
New Economics Papers: this item is included in nep-bec, nep-geo and nep-ure
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Related works:
Working Paper: Plants in Space (2020) Downloads
Working Paper: Plants in Space (2020) Downloads
Working Paper: Plants in Space (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedrwp:88430

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DOI: 10.21144/wp20-05

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