Journal Article

Networking off Madison Avenue

Mohammad Arzaghi and J. Vernon Henderson

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 75, issue 4, pages 1011-1038
Published in print October 2008 | ISSN: 0034-6527
Published online October 2008 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2008.00499.x
Networking off Madison Avenue

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This paper studies the advertising agency industry in Manhattan to infer networking benefits among agencies in close spatial proximity. We use economic census data that allow us to distinguish locations at a fine level of geographic detail, so as to infer the strong effect on productivity of having more near advertising agency neighbours. Paying close attention to identification issues, we show, however, that there is extremely rapid spatial decay in the benefits of more near neighbours, even in the close quarters of southern Manhattan, a finding that is new to the literature. This suggests that high density of similar commercial establishments is important in enhancing local productivity for those industries found in large cities, where information sharing plays a critical role. Our results indicate that the benefits of more near neighbours are largely capitalized into rents rather than wages, challenging an existing literature, which estimates wage equations alone to infer agglomeration benefits.

Keywords: L84; M37; R32

Journal Article.  13958 words.  Illustrated.

Subjects: Housing Markets, Production Analysis, and Business Location ; Marketing ; Services

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