Every day, companies around the world make millions of decisions that shape the world we live in. What are they going to make? Who are they going to sell it to? Who will they hire to make their business more productive? 

For Ezra Oberfield, Professor of Economics at Princeton, studying why companies make these choices and what impact those choices have is crucial to furthering our understanding of economic growth. 

“In my view, getting at the answers to these questions can help us make progress on some of the core questions of economic growth,” Oberfield says. “For example, why some countries are richer and more productive than others.”

For Oberfield, who joined Princeton in 2013, that effort has included a recent study of how workers learn from colleagues, the development of a new method for measuring how replacing workers with machines has affected the U.S. manufacturing sector, and much more. 

A Starbucks on every corner?

In a major study now forthcoming at the Journal of Political Economy, Oberfield and his fellow researchers build a model of the complex decisions companies like Starbucks, Rite Aid, or others make when deciding if, when, or where to open new locations.

“Over the last few decades, we’ve seen many of the largest firms open stores across increasingly many locations, perhaps due to changes in technology that make it easier for firms to increase scale,” Oberfield says. “These changes have affected local competition in those locations, and ultimately determine which locations have access to which types of goods and services.”

Highlighted Research
❱ Plants in Space
with Esteban Rossi‑Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter

The researchers document that more productive companies set up more plants in denser, higher-rent locations than less productive companies, but fewer plants in markets with lower density and rents. 

Using insights from discrete geometry, the researchers show that this happens naturally in a model in which an important constraint on a company’s activities is the manager’s time and attention. While highly-productive companies earn large variable profits from each plant, they choose to limit the number of plants in less-dense markets because of the demands on scarce managerial resources. In line with the model’s prediction, the researchers document that, among companies that operate the same number of plants in a given market, plants operated by the more productive companies are larger. 

The researchers’ methodology has many exciting applications. For example, it could be used to study how changes to transportation infrastructure might affect a company’s geographic footprint.

When it comes to “good research,” tastes vary

Oberfield says the willingness and ability of faculty, students, and staff at Princeton to engage on almost any topic is what makes the university one of the best places to study economics.

“Standards are high,” he says. “But you can work on anything as long as it’s interesting and the approach is thoughtful. This makes it easy to be creative and leads to high quality research.”

And while he loves teaching–and witnessing the moment where a student’s hazy understanding of something suddenly becomes clear–he’s hesitant to give advice on how to become a great researcher. 

“What works well for one person in one context may not for another in a different context,” he says. “With that said, something that was useful for me to hear early on is that there is a huge variety of opinions about what constitutes good research. People differ in taste for what questions are interesting and important as well as which approaches to answer questions are useful.”

“So, find projects that you personally find interesting, that you enjoy working on, and that are good matches to your skillset. And trust your instincts, because nobody is in as good of a position to judge those aspects of a project as you.”

To learn more about Oberfield’s work, visit his personal website.