Geneva Trade and Development Workshop 5: David Atkin on "The Returns to Face-to-Face Interactions"

The Returns to Face-to-Face Interactions: Knowledge Spillovers in Silicon Valley

David Atkin
Massachusetts Institute of Technology (MIT) and CEPR
joint with Keith Chen and Anton Popov

Abstract: The returns to face-to-face interactions are of central importance to understanding the determinants of agglomeration. However, the existing literature studying patterns of geographic proximity in patent citations or industrial co-location has struggled to disentangle the benefits of face-to-face interactions from other spatial knowledge spillovers. In this paper we attempt to more directly measure face-to-face interactions using highly granular smartphone geolocation data in Silicon Valley. To study the degree to which knowledge flows result from these interactions, we explore the relationship between cross-firm worker meetings and cross-citations between their firms. To navigate endogeneity concerns due to firms organizing meetings with firms they wish to learn from, we instrument face-to-face meetings with a measure of serendipitous interactions calculated from meetings between workers in adjacent firms that are in industries very unlikely to meet for work-related reasons. As this proxy for chance meetings potentially shifts the cost of organizing face-to-face meetings, our main estimates are local average treatment effects (LATEs) combining the returns to planned and chance meetings. However, if we assume that the subset of chance meetings occurring during work-hours differentially load on planned meetings, we can test whether our LATE estimates identify the returns to serendipitous meetings that play a central role in the urban theories of Jane Jacobs. Our results suggest substantial knowledge spillovers from face-to-face interactions with our LATE estimates capturing the returns to serendipitous interactions. Finally, we provide evidence for one particular mechanism through which this knowledge may flow: transitions of workers between firms resulting from face-to-face meetings.