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Impacts of Central Business District Location: A Hedonic Analysis of Legal Service Establishments

  • Frank Limehouse
  • Robert McCormick

This analysis examines the business impacts on law firms of locating in Central Business Districts (CBDs) in major U.S. cities. Specifically, we measure the price premium that law firms pay to locate in CBDs. Using micro-level data from the 1992 and 2007 Census of Services, we find that after controlling for firm size, firm specialization characteristics, and MSA and county attributes, law firms within CBDs pay about 15 to 20 percent more in overhead compared to those firms outside CBDs – a result consistent across time between 1992 and 2007. When including an important additional measure of firm quality, however, we find that this impact is reduced to about 7 to 9 percent, but still statistically significant. Additional results show that there is a significant correlation between firm quality and CBD location. We also find that firm size and firm specialization measures are important factors in the choice to locate within CBDs. We argue that these results indicate that CBD location for law firms may serve as networking, quality sorting, and branding mechanisms.

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File URL: ftp://ftp2.census.gov/ces/wp/2011/CES-WP-11-21.pdf
File Function: First version, 2011
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 11-21.

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Length: 29 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:cen:wpaper:11-21
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  1. Ivar Ekeland & James J. Heckman & Lars Nesheim, 2004. "Identification and Estimation of Hedonic Models," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S60-S109, February.
  2. James J. Heckman & Rosa L. Matzkin & Lars Nesheim, 2009. "Nonparametric Identification and Estimation of Nonadditive Hedonic Models," NBER Working Papers 15226, National Bureau of Economic Research, Inc.
  3. Ihlanfeldt, Keith R. & Taylor, Laura O., 2004. "Externality effects of small-scale hazardous waste sites: evidence from urban commercial property markets," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 117-139, January.
  4. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  5. J. Vernon Henderson & Mohammad Arzaghi, 2005. "Networking Off Madison Avenue," Working Papers 05-15, Center for Economic Studies, U.S. Census Bureau.
  6. Luis Garicano & Thomas N. Hubbard, 2007. "The Return to Knowledge Hierarchies," NBER Working Papers 12815, National Bureau of Economic Research, Inc.
  7. Thomas N Hubbard & Luis Garicano, 2003. "Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms," Working Papers 03-13, Center for Economic Studies, U.S. Census Bureau.
  8. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  9. Mohammad Arzaghi, 2005. "Quality Sorting and Networking: Evidence from the Advertising Agency Industry," Working Papers 05-16, Center for Economic Studies, U.S. Census Bureau.
  10. Frank F. Limehouse & Peter C. Melvin & Robert E. McCormick, 2010. "The Demand for Environmental Quality: An Application of Hedonic Pricing in Golf," Journal of Sports Economics, , vol. 11(3), pages 261-286, June.
  11. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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