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Networking off Madison Avenue

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  • Mohammad Arzaghi
  • J. Vernon Henderson

Abstract

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. Copyright 2008, Wiley-Blackwell.

Suggested Citation

  • Mohammad Arzaghi & J. Vernon Henderson, 2008. "Networking off Madison Avenue," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1011-1038.
  • Handle: RePEc:oup:restud:v:75:y:2008:i:4:p:1011-1038
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2008.00499.x
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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