DP17323 A Penny for Your Thoughts

Author(s): William Walker Hanlon, Stephan Heblich, Ferdinando Monte, Martin Schmitz
Publication Date: May 2022
Keyword(s): communication, Innovation, Knowledge Flows, Penny Black Stamp
JEL(s): N9, O3, R1
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17323

How do communication costs affect the production of new ideas and inventions? To answer this question, we study the introduction of the Uniform Penny Post in Great Britain in 1840. This reform replaced the previous system of expensive distance-based postage fees with a uniform low rate of one penny for sending letters anywhere in the country. The result was a large spatially-varied reduction in the cost of communicating across locations. We study the impact of this reform on the production of scientific knowledge using citation links constructed from a leading academic journal, the Philosophical Transactions, and the impact on the development of new technology using patent data. Our results provide quantitative causal estimates showing how a fall in communication costs can increase the rate at which scientific knowledge is exchanged and new ideas and technologies are developed. This evidence lends direct empirical support to an extensive theoretical literature in economic growth and urban economics positing that more ideas can emerge from communication between individuals.