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

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 spillovers. In this paper, we use highly granular smartphone geolocation data to measure face-to-face interactions (or meetings) between workers at different establishments in Silicon Valley. To study the degree to which knowledge flows result from such interactions, we explore the relationship between these meetings and the citations among the firms these workers belong to. As firms may organize meetings with those they wish to learn from, we isolate causal impacts of face-to-face meetings by instrumenting with the meetings between workers in adjacent firms that belong to unconnected industries. Our IV approach estimates substantial returns to face-to-face meetings with overidentification tests suggesting we are capturing the returns to serendipity that play a central role in the urban theories of Jane Jacobs.

Keywords: Estimation of agglomeration economies, Face-to-face Interactions, Knowledge Spillovers, Serendipity

JEL Classification: O18, O3, R3